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Yachats Rural Fire Protection District, OR -- Moody's downgrades Yachats RFPD, OR's GOULTs to Ba1; outlook negative

·12 min read

Rating Action: Moody's downgrades Yachats RFPD, OR's GOULTs to Ba1; outlook negativeGlobal Credit Research - 01 Sep 2022New York, September 01, 2022 -- Moody's Investors Service has downgraded Yachats Rural Fire Protection District, OR's general obligation unlimited tax (GOULT) rating to Ba1 from Baa3. The rating action affects approximately $7.4 million in rated debt. The outlook is negative.RATINGS RATIONALEThe downgrade primarily reflects the district's worse than expected 2021 performance coupled with its failure to obtain voter approval for a critical supplemental operating levy in November 2021. Fiscal 2021 continued the district's multi-year trend of financial deterioration, ending with a negative fund balance position and very narrow liquidity that was supported by reliance on cash flow borrowing. The rating incorporates the expectation that the district's balance sheet will improve modestly in 2022, largely due to one-time proceeds from a sale of an old fire station, but absent meaningful revenue and expenditure realignment and improved budget management the district's structural imbalance will continue into fiscal 2023. Governance is a key driver to the rating downgrade; poor budgetary management has resulted in sustained structural imbalance and increased cash flow borrowing, exacerbating the financial strain on the district's small size of operations.The Ba1 rating also reflects the district's small, rural and tourism driven local economy on the Oregon Coast with below average resident income offset by high full value per capita given the significant presence of second homes in the area. The district's elevated debt burden, high fixed costs, and manageable pension liabilities are also factored into the rating.RATING OUTLOOKThe negative outlook reflects our expectation that despite one-time budget relief in fiscal 2022 a return to cash flow borrowing and further financial weakening is expected through fiscal 2023. Rising expenditures and inability to secure an ongoing recurring revenue source will pressure the district's financial position in the immediate term. Management will likely return to voters in the near term to seek approval of a new operating levy, the passage of which will be critical to the district's credit quality.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Effective realignment of recurring revenue with recurring expenditures- Improvement and stabilization of liquidity and reserve positions- Timely passage of supplemental operating levy- Material tax base growth and improvement in resident incomesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Failure to secure passage of the district's new local option levy- Continued reliance on non-recurring one-time revenue and deterioration of financial reserves and liquidity- Contraction of tax base and weakened economic indicators- Sustained growth in debt and fixed costs burdenLEGAL SECURITYGOULT debt is secured by the district's full faith, credit and unlimited property tax pledge. Debt service for GOULT bonds in Oregon is funded by a separate property tax levy that is dedicated to bondholders and secured through statute, a beneficial credit strength for bondholders.PROFILEYachats Rural Fire Protection District is a full-service fire and rescue agency in Lincoln County, Oregon serving a 15 square mile service boundary including the City of Yachats and surrounding rural areas. The district operates 3 fire stations staffed by a volunteer Fire Chief, 6 full-time firefighters, two administrators and 4 volunteers.METHODOLOGYThe principal methodology used in this rating was US Local Government General Obligation Debt published in January 2021 and available at https://ratings.moodys.com/api/rmc-documents/70015. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Joseph Manoleas Lead Analyst REGIONAL_WEST Moody's Investors Service, Inc. 405 Howard Street Suite 300 San Francisco 94105 JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Robert Weber Additional Contact REGIONAL_NE JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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