LOS ANGELES - Los Angeles County's $1.8 billion of tax and revenue anticipation notes, scheduled for pricing today, have earned the highest credit ratings possible, despite continuing budget pressures.
Moody's Investors Service late Friday assigned a MIG-1 rating to the issue, while Standard & Poor's Corp. rated the notes SP-1-plus, and Fitch Investors Service Inc. rated them F-1-plus.
The fixed-rate Trans will mature on June 30, 1994.
The highest short-term rating possible "reflects good overall coverage of note debt service ... and the county's strong financial monitoring and control during a period of significant budget stress," Standard & Poor's said in a release.
The $1.8 billion offering is the largest-ever cash-flow issue for the county. But, Fitch said, "The amount is reasonable given the sizable general fund budget, and the inherent cash-flow imbalance caused primarily by property tax collections that are concentrated in four months."
Moody's said its rating reflects "historically strong financial, budgetary, and cash management," though the rating agency added that the county's financial operations "will remain tight."
"The budget is subject to a number of uncertainties," Moody's said, "including actions by the state and the outcome of labor negotiations, and it requires the implementation of substantial expenditure cuts on a timely basis."
County officials also have the authority to structure up to $1 billion of the issue as variable-rate notes. Liquidity for the variable-rate notes would be provided through a standby note purchase agreement with four banks.
A county official said Friday that the county and its underwriters will decide at the time of pricing whether to include variable-rate notes in the deal. Lehman Brothers is leading the fixed-rate underwriting team, while First Boston Corp. would be the senior manager for any variable-rate portion.
Standard & Poor's also said it maintained its negative outlook on the county's long-term debt, reflecting the area's economic slowdown and the effect of the state's budget-balancing actions.
California legislative leaders agreed Sunday on the outline of a new state budget that includes the use of $2.6 billion in property taxes from local governments for education purposes.
Los Angeles County's "total fiscal 1994 budget gap could reach nearly $900 million, or 10% of its general fund budget," depending on the severity of the local property tax transfer, Standard & Poor's said.
Fiscal 1994 begins on July 1.
"We think the next six months will be pretty critical to the [long-term] rating" of the county, observed Philip Edwards, a director with Standard & Poor's.
How the county's long-term rating fares will depend on several factors, including the severity of state budget changes on the county's revenues, the county's ability to realign recurring revenues and expenditures, and the effect of the region's economic restructuring, said Standard & Poor's, which currently rates the county's general obligation bonds AA-minus.
