They did it again!

Oyster Bay, NY GO Bond Rating Lowered To 'A-' From 'A' Pursuant To New Local GO Criteria

NEW YORK (Standard & Poor's) Oct. 25, 2013--Standard & Poor's Ratings Services lowered its long-term rating on Oyster Bay, N.Y.'s general obligation (GO) bonds to 'A-' from 'A', based on our new local GO criteria, and removed the rating from CreditWatch with negative implications, where it had been placed July 25, 2013 (please see media release published July 25, on RatingsDirect). The CreditWatch reflected the town's risk of running out of cash by early November if it failed to execute on the sale of a parcel of town property, budgeted at $17 million in the fiscal 2013 budget. The town has since entered into a purchase and sale agreement on Aug. 27, 2013 with Oyster Bay Realty, LLC, a private entity, and has received $30 million of the $32.5 million purchase price as of Sept. 4, 2013. The remainder is in escrow until the property is vacated.

"The lower rating is based on our new local GO criteria and our view of the town's deficit general fund reserves in fiscal years 2011 and 2012," said Standard & Poor's credit analyst Lindsay Wilhelm.

At the same time, we assigned our 'A-' long-term rating, and stable outlook, to the town's series 2013B GO public improvement bonds. Oyster Bay's faith and credit GO pledge secures the bonds, including the statutory authorization to levy ad valorem taxes on all real property within the county, subject to applicable statutory limitations. Officials plan to use proceeds of the series 2013B bonds to redeem bond anticipation notes (BANs) originally issued for various public improvements, including park, beach, and highway projects.

The long-term rating reflects our view of the town's very weak budgetary flexibility based on two years of audited data showing available general fund reserves of negative $5.4 million, or negative 5.4% of expenditures in 2011; and negative $10.3 million, or negative 8.7% of expenditures in 2012, which together cap the rating at 'A-'. In addition, Oyster Bay closed 2012 with deficits in several of its other governmental funds due to either structural or one-time issues related to litigation.

The stable outlook reflects our view of the town's weak financial position due to years of structural decline offset by one-time revenues from the executed land sale that are providing at least a temporary boost to reserves and liquidity. Should the town achieve the projected fiscal 2013 surplus and demonstrate that it is able to maintain at least adequate liquidity and positive general fund reserves, we could raise the rating one or more notches. Conversely, given Oyster Bay's very weak initial liquidity and reserve position in 2012, we could lower the rating if the town is unable to maintain the projected improvement in its cash and reserve position from the 2013 land sale.