Moody’s, the credit rating agency, has corrected a clerical error adjusting the outstanding debt rating for the Paterson Parking Authority to Baa3 from A3, and the agency is reviewing the authority’s rating for a possible downgrade.
Although the rating drop appears steep, the agency still ranks the debt of the authority as “investment grade,” financial jargon for the debt being a good buy without too much risk for an investor. The correction, which was made in January, affects about $16.3 million of the authority’s outstanding debt obligations.
Tony Perez, director of the authority, said the correction will make borrowing much more costly, but the authority has recovered from its 2012 low and is looking at a good 2014. “We had a bad year in 2012,” said Perez.
During that year, said Perez, the authority saw less “parkers” in its open air garages or “surface parking” locations. As a result of less drivers parking in open garages, the authority saw less revenue that year, said Perez.
As a result of low revenue the authority suffered what the agency calls a “non payment related default” which simply means the parking agency came short of meeting an agreed upon revenue percentage to debt.
“The authority’s rate covenant stipulates that net revenues must equal at least 125% of required annual debt service,” said the agency during the downgrade. “However, net revenues were only equal to 103% of annual debt service in fiscal 2012. This constitutes an event of default under the authority’s general bond resolution.”
Perez re-assured that this does not mean a default in the traditional sense, it simply means the authority was not able to collect as much money from “parkers” as it ought to have, and as a result its coffers did not have the stipulated 125-percent of annual debt service.
Due to that missed percentage the agency may issue a downgrade in the coming months.
The rating error was made by the agency in 2010 when the agency used the wrong algorithm to issue a rating. The agency said it was an “administrative” error, where the agency assumed the authority’s debt was guaranteed by taxpayers rather than it being based on the income of the project the authority was carrying out at the time.
In 2005, the last time the agency reviewed the authority’s rating, it had a Baa3, that rating has been reinstated, according to the agency.
After a less than stellar 2012, said Perez, the authority has gained better footing in 2013. “We rebounded last year,” said Perez.