Moody's Changes Outlook on Village Bond Rating

The Radisson Hotel debacle has left subcontractors in a bit of a financial bind, but it also could have long-term effects on the village’s debt.

In June 2011, Village Manager Mark Fitzgerald was a solid Aa2 rating with a stable outlook, which means investors in village bonds can expect a high-quality investment with very low credit risk. As a result, the village can borrow with ease and keep property taxes stable.

However, in May, Moody’s reaffirmed the village’s rating but assigned a negative outlook to it. The change in heart by Moody’s was directly related to five-story, $17.65 million liability on Main Street.

According to Moody’s, the bond rating is challenged by development risk with the hotel, and the village’s exposure to unknown expenditures as a result of that risk. Stagnant development trends were also cited as a challenge to the village bond rating.

Significant and unanticipated costs or financial losses associated with the hotel project could cause Moody’s to downgrade the bond rating in the future.

“We’ve maintained our Aa2 rating, but we went form a stable outlook to a negative outlook. They (Moody’s) cited moderate risk associated with the hotel project,” Fitzgerald said Friday. “The negative outlook prompts us to make sure we are moving in a timely fashion to resolve the issues at the hotel, and that is what we are doing.”

The highest bond rating is a Aaa rating. An Aa2 is the third-highest Moody's ranking.

The first step in the process to resolve the hotel issue was to . The village against the Radisson earlier in June.

For a collection of Menomonee Falls Patch coverage of the Radisson Hotel, check out our topics page here.

According to Moody’s, a timely resolution to the village’s obligations with the hotel will be the best course to maintain its bond rating and avoid a detrimental impact on its credit quality. If things don’t turn around, the village bond rating could be downgraded.

“A negative outlook means the rating doesn’t change but there’s a risk of a downgrade over the next 18 to 24 months,” said Don Jacobsen, a spokesman for Moody’s. “Bottom line, the rating isn’t changed but there is downward pressure.”

A downgrade in a municipality’s bond rating would have two primary effect. First, the village would have to pay a higher interest rate for future debt borrowings, which makes it costlier to fund routine operations. Secondly, the value of village bonds would go down.

Currently, has $82.8 million in outstanding debt. However, the village has a stable reserve fund level, and an above-average socioeconomic profile.