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Bond Rating Information
Municipal Bonds

The City received the most coveted bond rating, but what does all this mean?

Let's review what a municipal bond is and what the bond rating process is.

Municipalities issue general obligation (GO) bonds to finance infrastructure needs, i.e., it is a debt financing mechanism to provide capital for projects. Another way of explaining it is a community identifies a need and decides to issue a bond to investors to receive cash payments with the promise to repay the bond holder over time. The proceeds, or cash payments, from a bond sale are then used to pay for the designated purpose of those funds.

While there are other methods to issue debt this is the most commonly used method among municipalities.

What was completed for the City by Moody’s Investor Services, a bond rating agency, was a process to establish a municipality’s credit risk. In other words, it is an assessment of a city, villages or town’s capacity to meet its financial commitments.

Currently, there are three major rating agencies for municipal bonds: Moody's Investor Services, Standard & Poor's and Fitch Ratings.

When researching a municipality to assign a rating for GO bonds Moody's analyzes the following factors using a weighted average approach:

-          Economic Strength

-          Financial Strength

-          Management and Governance

-          Debt Profile

The principal methodologies used to rate GO Bonds Issued by U.S. Local Governments is explained here.

Moody’s Ratings

“Aaa” - Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“Aa” - Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues. 

“A” - Issuers or issues rated A present above-average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.  

“Baa” - Issuers or issues rated Baa represent average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“Investment Grade” ratings are those in the Baa category or higher.

“Ba” - Issuers or issues demonstrate below-average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“B” - Issuers or issues rated B demonstrate weak creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“Caa” - Issuers or issues rated Caa demonstrate very weak creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“Ca” - Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

“C” - Issuers or issues rated C demonstrate the weakest creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

Bonds in the Aa, A, and Baa are also assigned "1", "2" or "3" based on the strength of the issue within each category. Accordingly, "A1" would be the strongest group of A securities and "A3" would be the weakest A securities.

Again, the City of Wauwatosa received the highest rating, which indicates it’s creditworthiness to meet its financial commitments.

To see the City’s Capital Budget (the projects the City bonds for), please see this document.



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