Bond rating agency Moody's downgraded the city of Dubuque's water revenue bond score Monday from Aa3 to A1. The city announced the downgrade in a press release Tuesday. The rating affects $6.5 million in outstanding water debt, but city officials said it is not expected to increase interest rates. Dubuque's bond rating for general obligation bonds will be unaffected and remains at Aa1, the second-highest rating possible. Finance Director Ken TeKippe said the downgrade is the result of the city's failure to meet a net revenue covenant in fiscal year 2012. The city borrowed money for capital projects in 2008 and 2010. Per the debt agreements, the city must produce water utility revenue equal to at least 125 percent of its annual debt service requirement. According to audited numbers, Dubuque fell short of that obligation for the first time in 2012. But taxpayer impact is expected to be negligible, TeKippe said. "The only cost there could be is it could affect future borrowing," he said. No water revenue bond borrowing is anticipated in fiscal year 2014. Even if the city elects to issue new water revenue bonds, interest rates likely would only be bumped up by about one-tenth of 1 percent, TeKippe said. He also said the downgrade might only be temporary. Though numbers from fiscal year 2013 have not been audited yet and, thus, are considered unofficial by Moody's, it appears the city was able to rebound and again meet its debt service covenants, he said. A strong performance could prompt Moody's to restore the city's water revenue bond rating, TeKippe said. "I assume it's going to (be restored) when they do it next year," he said. "I anticipate, or I'm certainly hopeful, that the rate would go back up." Moody's uses nine classifications when assigning bond ratings based on credit risk. Entities are ranked Aaa, Aa, A, Baa, Ba, B, Caa, Ca or C, with numerical modifiers 1, 2 and 3 further clarifying each ranking.
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