Moody's Downgrades New Milford's Bond Rating

Moody's Investors Service announced that it has downgraded the Borough of New Milford's general obligation debt rating.

The downgrade will affect approximately $1.7 million in outstanding rated debt secured by the borough's general obligation unlimited tax pledge.

According to Moody's, the downgraded rating reflects New Milford's moderately-sized tax base, favorable socio-economic profile and low debt burden. The rating also incorporates the borough's recently narrowed financial flexibility, evidenced by reduced cash and current fund balance levels, renewed need for cash flow borrowing and more stringent state-wide property tax levy increase limitations.

Mayor Ann Subrizi told Patch she is in the process of reviewing this downgraded rating with the borough's Chief Financial Officer and will respond once she's had a chance to review it in full. 

A general obligation bond is a common type of municipal bond that is secured by a state or local government's pledge to use every available legal resource, such as increasing tax revenues, to repay bond holders. They are "obligated" to pay the loan back.  

As part of its rationale, Moody's has listed New Milford's strengths as: above-average wealth levels, low unemployment, and low debt burden. It cited New Milford's challenges as: narrow financial position with limited revenue raising flexibility, deteriorating liquidity and reliance on cash flow borrowing, and tax base declines. 

In the financial markets, a government's bond credit rating assesses the credit worthiness of a government's debt issues. Essentially, it's their credit rating. There are three major rating agencies for municipal bonds: Moody's Investors Service, Standard & Poor's, and Fitch Ratings. Of the three rating agencies, Standard & Poor's and Moody's rate over 80% of all municipal and corporate bonds.

What does this lowered rating mean, exactly? In Moody's terms it means that New Milford's credit-worthiness has been downgraded from Aa3 to A1. A Moody's rating of Aa3 represents that an obligor has a very strong ability to meet its financial commitments. It differs from the highest rated obligors (Aaa, Aa1, Aa2) only by a small degree.  

An A1 rating represents that an obligor has a strong capacity to meet its financial obligations, but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories. 

For a listing of Moody's recent New Jersey municipal bond ratings, including New Milford, click here.

In August, Fitch Ratings lowered the rating of the state of New Jersey's general obligation bonds one degree--from AA to AA-. According to the New York Times, only California and Illinois have worse ratings.