Fruita Bond Rating Raised to AA- on Maintenance of Very Strong Financial Position

CENTENNIAL (S&P Global Ratings) June 11, 2019--S&P Global Ratings raised its long-term rating to 'AA-' from 'A+' on Fruita, Colo.'s sales and use revenue bonds outstanding. At the same time, S&P Global Ratings assigned its 'AA-' long-term rating to the city's series 2019 sales and use tax revenue refunding and improvement bonds. The outlook is stable. "The raised rating reflects our view of management's ability to maintain the city's very strong financial position, exemplified through maintenance of reserve in excess of 75%, and strong budgetary performance with surplus operating results in recent years," said S&P Global Ratings credit analyst Angel Bacio. "Our rating further reflects our opinions of the city's stable tax base and financial practices and policies that we view as good." 

A 1% city sales tax and a debt service reserve that is funded at maximum annual debt service (MADS) secure the bonds. In addition to the sales tax pledge, a city bond ordinance provides for a moral obligation, whereby the city manager is required to submit to the city council a request to restore the debt service reserve to its requirement 90 days before debt service is due. Under the ordinance, the city council could, but is not required to, make an appropriation to restore the reserve to its full requirement. If the supplemental reserve is released from the pledge to bondholders, as permitted  under circumstances described above, the same 90-day period to submit a request for a make-up appropriation to the city council will be required if the debt service reserve is below its MADS requirement. The enacted bond ordinance states that the city council's intention is to honor its moral obligation pledge, although it is not legally required to make such an
appropriation, and it is not an event of default if it doesn't.

In our opinion, the rating reflects the stronger pledge of the moral obligation of the city, subject to annual appropriation, to replenish the required reserves in the reserve account to MADS.