How about one for the home team! As a result of the shift to a global ratings scale in the municipal markets, Standard & Poor’s, Moody’s and Fitch each give the City and County of Denver’s General Obligation bonds a triple-A (AAA) rating. In fact, Denver is the only city or county in Colorado to hold AAA ratings from all three credit agencies. As previously discussed in our blog, the upgrade was part of a lengthy recalibration of municipal debt ratings that the ratings agencies undertook over the last two years, reflecting a recognition that the agencies had historically overestimated the risk in municipal debt. When you look at mainstream municipal ratings on things like general obligation bonds or traditional essential service bonds, you see a minuscule default rate, especially when you compare them to corporate bonds.
The ratings trifecta reflects Denver’s diversified economic base and proactive financial management, but it will also translate into savings for city taxpayers. The difference between a top Aaa and an Aa1 rating – the shift Denver made – was about 0.20 percent in municipal transactions, based on recent market levels. That sounds like a small number, but that difference would translate into a measurable cost savings to the city of the life of a municipal issue. The upgrades were music to the ears of Denver’s Mayor, John Hickenlooper. “It’s rewarding to have three national agencies recognize the city’s creditworthiness with their highest ratings, Hickenlooper said, “This is the result of tough choices Denver has made in recent years to deliver balanced budgets and operate the city government efficiently and effectively.”
What does this mean to municipal investors? Well, holders of Denver GO munis should expect to see some price appreciation in their portfolios as the market acknowledges the fully recognized strength of the credit. Additionally, the lower borrowing costs afforded to the City of Denver will perhaps allow the city to bring additional supply to the marketplace. All in all, the good news is not only an affirmation of financial prudence of our city, but also a validation of the relative strength and stability of municipal credits.