- Debt Service
- Terms & Definitions
Terms & Definitions
In order to understand the information presented here, a few key terms need to be defined:
General Obligation Bond (GO Bond): a municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project. GO Bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue. The City has a total of $69.6 million in general obligation debt; $66.2 million is tax supported and $3.5 million is revenue supported.
Certificates of Obligation (CO): a financing mechanism a city may use to pay a contractual obligation incurred in:
- A construction contract
- The purchase of materials, supplies, equipment, machinery, buildings, land, and rights-of-way for authorized needs and purposes
- The payment of professional services, including services provided by tax appraisers, engineers, architects, attorneys, map makers, auditors, financial advisers, and fiscal agents
The City has a total of $18.3 million in certificates of obligation; $15.1 million is tax supported and $3.2 million is revenue supported.
Refunding: a process where bonds are issued for the purpose of retiring outstanding bonds in order to restructure debt, reduce finance costs, and/or alter maturities. This is a complicated and detailed process, but in the simplest terms, bond proceeds from a new issue are used to pay off all or a portion of existing debt. Interest savings of $3,446,153 have been recognized since the City began the practice of refunding bonds in Fiscal Year 2011.
Early Redemption: a process where portions of bond principal are paid off early to reduce interest costs. The City began using early redemption in Fiscal Year 2013 when Texas Department of Transportation (TxDOT) began repayment per the Pass-Through Toll Agreement (See 2008 GO Bond detail). Since 2013, the city has redeemed an additional $7,110,000 in principal that has resulted in $4,989,638 in interest savings.
Combined interest savings from refunding and early redemption total $8.4 million.
Credit Rating Information
Credit ratings are opinions about credit risk. Ratings express an opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.
The City's credit is reviewed and rated with each bond issue by both Standard & Poor's (S&P) and Moody's Investors Service.
Standard & Poor's Global Ratings: AA-
S&P issues credit ratings in range from 'AAA' (Extremely strong capacity to meet financial commitments) to 'D' (Payment default on a financial commitment or breach of an imputed promise; bankruptcy petition or similar action taken). A plus (+) or minus (-) can be added to ratings from 'AA' to 'CCC' show relative standing within the major rating categories.
The City's rating of 'AA-' indicates a very strong capacity to meet financial commitments.
Moody's Investors Service (PDF): Aa3
Moody's issues credit ratings in a range from 'Aaa' (Highest Quality, with minimal risk) to 'C' (Typically in default, with little prospect for recovery of principal and interest). Moody's uses numerical modifiers to indicate a rating is on the higher end (1), mid-range (2), or lower end (3) of a rating category.
The City's rating of 'Aa3' indicates the city is viewed to be high quality with very low credit risk.