Credit Analysis

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Credit Analysis

• Michael Borgani, Director
• Fitch Ratings
• Date April 24, 2006

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Credit RatingsTerminologyThe Rating
ProcessMethodologySummary
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What is a rating?

• Notation summarizing the likelihood of a
  repayment for a specific debt obligation
• Letter Category AAA, AA, A, BBB,.
• and - specify placement with the category
  AA, AA, AA-, A,
• Band of credit quality

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A Rating Is NOT

• A judgment or statement regarding any aspect of
  public policy
• A political statement in favor of or against a
  particular person or administration
• A dictate of what should be done or how a matter
  should be handled

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To Rate Or Not To Rate

• Increase investor acceptance
• Current economic environment
• Current capital market environment
• BOTTOME LINE Lower interest cost!

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The Rating Process
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Overview

• The Beginning Decision and documents
• The Middle Lets Talk
• The End Rating committee, communication, and
  dissemination
• Appeal process, if necessary

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Other Rating Agency Products (at least at Fitch)

• Look See
• Credit Assessment

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Elements of Tax-supported Credit

• Debt and Capital Plan
• Economic Factors
• Financial Factors
• Management

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Management, Management, Management!

• Importance revealed through Fitchs default study
• Written, adopted policies
• Policy monitoring, implementation

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Management Best Practices--Debt

• Affordability guidelines
• Pay-as-you-go practices
• Amortization considerations
• Multi-year CIP
• Operating cost considered
• Contingency Planning

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Management Practices--Finance

• Fund balance/reserve goals
• Multi-year forecasting
• Mid-year monitoring and budget adjustment
• Use of non-recurring revenue
• Contingency planning

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Management Best PracticesAlso Think About

• Taxpayer/voter communication
• Labor relations
• Intergovernmental relations/cooperation
• Public/private partnerships

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Additional Credit Elements for Lease Financings

• When a bond is not debt?
• Project essentiality
• Legal structureCovenant to budget and
  appropriate
• Construction and completion risk
• Abatement
• Evidence of support
• Reliance on lease financing

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Rating Tips

• Tip 1 Timing is everything (well, almost)
• Tip 2 Honesty is the best policy
• Tip3 Seek and ye shall find (ask the analyst)

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