Pico Rivera receives S&P AA rating on pension bonds, seeks to refinance and save millions

By Brian Hews

April 26, 2022 ~ An S&P Global Emission Credit Rating (S&P) is a forward-looking opinion of a city’s creditworthiness related to a specific financial obligation.

The opinion reflects S&P’s analysis and considers the City’s ability to meet its financial commitments as they come due.

In 2021, the Pico Rivera City Council authorized the City Manager to issue pension bonds (POBs) to pay off a portion of the city’s currently unamortized and unfunded accumulated debt to the California Public Employees Retirement System (CalPERS), saving the city millions.

And the city’s overall financial position for issuing POBs has been well received by financial rating companies.

Yesterday, S&P assigned its long-term ‘AA’ rating to Pico Rivera’s POB of $19.325 million.

An obligation rated “AAA” has the highest rating assigned by S&P; the city’s ability to meet its financial commitment on the debt is extremely strong.

An obligation rated “AA” differs from the highest rated obligations only to a small extent. The City’s ability to meet its financial commitment to the debt is very strong.

The high ratings didn’t stop there. At the same time, S&P affirmed its “AA-” long-term rating and its underlying rating called SPUR on the city’s existing rental income bonds, writing, “the outlook is stable.”

A SPUR rating is an opinion of a city’s ability to pay debt service on an issue of credit-enhanced debt, in this case, the city’s existing rental income obligations. Ratings are released at the request of the city with the designation SPUR to distinguish them from the enhanced rating that applies to debt issuance.

City POBs can be paid from any available funds. Citing Pico Rivera’s “strong management team,” S&P rated the city’s POBs “on par with its overall creditworthiness, as we believe the city’s ability to pay the obligation is closely tied to its operations.”

The recent AA rating provides an opportunity for City Council to consider a resolution approving the final steps and documents needed to refinance a new round of POBs.

If approved, the city will refinance approximately 62% of the city’s unfunded actuarial debt (UAL), reduce current UAL payments by approximately $7.5 million, and achieve a funded ratio of 90% after the issuance of POBs.

S&P wrote: “The city has continued to produce operating surpluses during the pandemic thanks to conservative revenue forecasts and spending restrictions.

“Following a review of the reserve policy, the city has increased its reserve policy target in 2020 to 50% of revenue to adjust to the risk characteristics of general fund revenue, which provides an additional cushion against the downside risk.

“The stable outlook reflects our vision of the City’s very great budgetary flexibility and the positive evolution of its sales tax and property tax revenues, which have strengthened the City’s financial situation. We do not expect to change the ratings in the next two years.

Pico Rivera City Manager Steve Carmona told HMG-CN, “I am very proud of the excellent work the staff have done to maintain our good reputation with the investment community. Together, we worked to strengthen our general fund reserves to adjust to the risk characteristics of general fund revenues, maintained very high budget flexibility, and oversaw a positive trend in sales tax and income tax revenues. land, which has helped strengthen our overall financial position now and in the future. the future.”

Pico Rivera Mayor Dr. Monica Sanchez said, “I would like to commend the town staff for their excellent work which has earned them the excellent rating from Standard and Poor’s. Their focus on continuing to generate operating surpluses during the recent pandemic through conservative revenue forecasts combined with a focus on spending restraint has gone a long way in maintaining our good reputation in the financial community.

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