Bond Ratings
A bond rating is a grade given to bonds that indicates their credit quality. Independent rating services such as Standard & Poor’s, Moody’s Investors Service and Fitch Ratings Inc. provide these evaluations of a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion.
The bond rating is an important process because the rating provides information for investors as to the quality and stability of the bond. The rating greatly influences interest rates, investment appetite, and bond pricing. The independent rating agencies issue their ratings based on future expectations and outlook.
The City currently carries ratings from Standard & Poor’s and Fitch Ratings on most outstanding bonds. For GO and CO debt, both agencies have assigned a rating of “AAA” which is the highest possible rating. Recent affirmation of the top bond rating recognizes the commitment by City Council and staff to ensuring sound financial oversight of City resources. The ratings demonstrate confidence of the rating agencies in the City’s ability to manage its finances. This allows the City to ensure our tax dollars go farther by borrowing funds at the lowest possible interest rates. This has allowed the City to maintain one of the lowest property tax rates in the state for cities over 60,000 in population in Texas for many years.
Utility Revenue Bonds carry a separate bond rating from both S&P and Fitch, with Fitch assigning a rating of "AA" and S&P also assigning a rating of "AA" : both high quality ratings for utility debt. These ratings reflect the City’s comprehensive long range financial and capital planning efforts and strong financial management practices.
The City’s economic development corporations (SLDC and SL4B) issue sales tax revenue bonds that are supported by the 1/4 cent economic development sales tax administered by each corporation. Each corporation is rated separately and independently from the City’s bond rating, and the ratings reflect the revenue streams and obligations of each corporation as evaluated by each rating agency.
Bond Ratings
| Issue Type | Standard & Poor's | Fitch Ratings | Moody's |
|---|---|---|---|
| General Obligation/CO's (tax-backed) | AAA | AAA | not rated |
| Utility Revenue Bonds | AA | AA | not rated |
| Sugar Land 4B Corporation (sales tax) | A+ | not rated | Aa3 |
| Sugar Land Devel Corporation (sales tax) | A+ | not rated | A1 |
Each time the City goes out to the market for a debt issue, rating agencies evaluate the City’s credit rating to assign a bond rating to the bond issue as well as other outstanding bonds of the City. The City provides full disclosure of operations and a broad range of financial information to the rating agencies to assist with their determination of the City’s bond rating.
The City prudently manages the General, Debt Service, Economic Development and Enterprise funds and attempts to issue and structure debt to maintain or increase current bond ratings, as this provides for a lower cost of borrowing.