Anchorage

Anchorage credit outlook downgraded from 'stable' to 'negative'

The credit rating agency Standard & Poor's on Wednesday affirmed Anchorage's top-level AAA bond rating but revised the outlook to "negative," with analysts in part citing the state's fiscal problems.

While Anchorage is in a strong economic position, the rating agency is seeing signs of weakening city reserves and headwinds from Alaska's economic crisis, said Chris Morgan, an S&P analyst who worked on the report. The revised outlook means there's at least a one-third chance the agency will lower Anchorage's general obligation bond rating in the next two years, Morgan said.

The ratings matter because they affect the interest that Anchorage pays on bonds it sells.

In August, S&P similarly lowered its outlook for the state of Alaska from stable to negative.

"In many respects, we're simply… in that same boat, in (S&P's) rating mind, with the state," Robert Harris, the city's chief fiscal officer, said in a Wednesday interview.

Contractions in oil industry employment, or the state further pulling back on support to local pension liabilities and school bond debt payments, could also affect Anchorage's credit rating, according to S&P's report.

The report also noted that in 2014, Anchorage's available fund balance, or reserves, was 14.2 percent of operating expenditures, or $65.7 million. S&P rating criteria uses a 15 percent threshold in determining the strength of reserves.

ADVERTISEMENT

Harris said city officials are projecting the city's reserve level to be above 15 percent in 2015 and 2016. He said he expects the rating to be revised back to stable in that case.

The other agency hired to rate the bonds, Fitch Inc., kept the city's rating unchanged at a stable AA+, just below the top score.

Andrew Ward, principal analyst on the Fitch report, said it's unlikely the agency would move the rating higher because of the concentration of the city economy in the natural resources sector.

"That adds a degree of cyclicality and sort of a risk that is not inconsistent with the very high rating ... but is probably inconsistent with the highest rating," Ward said.

As an agency, Fitch rarely gives municipalities a AAA rating, a level it generally reserves for states or countries. S&P, however, said in its report that it considers Anchorage debt better than U.S. sovereign debt.

Ward said that the agency also tries not to rate to the most recent dip or swing in oil prices or state funding.

Anchorage's rating is generally boosted by its "completely unusual" permanent trust fund, with a balance of $149 million, Ward said. The trust fund is restricted and the money can only be transferred to the city's general fund with voter approval, but it adds another source of potential financial flexibility, Ward said.

Devin Kelly

Devin Kelly was an ADN staff reporter.

ADVERTISEMENT