Fitch rates McAllen ‘AA+’ outlook stable for $45 million tax bonds

Fitch rates McAllen ‘AA+’  outlook stable for $45 million tax bonds
Monday, March 3, 2014 - 9:03am

The City of McAllen has received ‘AA+’ credit rating assigned by Fitch Ratings for the $45 million limited tax bonds the city was seeking to build the performing arts facility, sports complex, park and street improvements and pay issuance costs.

The City also received ‘AA+’ for $11.2 million combination tax and revenue certificates of obligation (COs). In assigning the second highest obtainable rating, Fitch Ratings cited McAllen’s “well managed finances, very strong reserves,” “diverse international economy,” “improving but below-average demographics,” “concentration in sales tax,” and “affordable long-term liability burden.”

“It’s like a person having a great credit rating,” said Mayor Jim Darling, City of McAllen. He added, “The result is that we do not have to get issuance on the $45 million that we issued and people who purchased the city’s debt feel the debt they purchased is very secure.”

The ‘AA+’ rating is the second highest rating a municipality can receive. The City of McAllen has always rated ‘AA+’. The only rating higher is ‘AAA’ and only a handful of cities ever receive that rating according to city administrators.

“What hinders McAllen from receiving ‘AAA’ rating is that the City is heavily dependent on city sales tax, the per capita income is low and the proximity to Mexico,” said Mayor Darling.

According to city officials a high bond rating helps reduce the city’s borrowing costs, allowing the city’s money to stretch further for capital projects. The City is able to sell General Obligation bonds to finance voter-approved capital projects, including new parks, libraries, pools and roads, at lower interest rates. The ratings also increase the value of existing General Obligation bonds for investors.

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