Collingswood Still at Junk Status, but Moody's Delivers Some Good News

Collinsgwood received a glimmer of hope from Moody’s this week on the borough’s bond credit rating.

While the agency maintained Collingswood’s Ba1 (junk status) rating, Moody’s also upgraded its appraisal of the outlook for the borough to "uncertain"—a moderate step up from its prior "negative" rating.

Bad credit ratings usually make it more difficult and more expensive to borrow money. 

Moody’s hit Collingswood with a in September 2011 and after a review in November from borough officials.

The Moody’s rating is chiefly concerned with $28 million in outstanding long-term, general obligation debt. The service upgraded Collingswood after it associated with the LumberYard construction project, of which Collingswood is a guarantor.

According to the Moody's report:

The unbudgeted payment far exceeds the borough’s fiscal 2011 unaudited year-end Current Fund balance of $1.05 million and represents a significant 26 percent of expenditures, in addition to the borough's existing debt service as a percentage of expenditures of 14.4 percent.

Collingswood has , deferring action until its April commissioners meeting.

The borough has several options in meeting its LumberYard debt obligation, Moody’s said. Some are less risky, but will cost more, while others expose Collingswood to more market risk, but could be cheaper. From the same report:

The revision of Collingswood’s outlook to direction uncertain recognizes potential upside to the credit risk profile as the borough works toward possibly finalizing a financing plan with less execution risk to meet a guaranteed obligation of $4.5 million.

Certain elements of proposed financing plans, if executed, may put upward pressure on the rating. Although the proposed financing plans may provide sufficient bondholder security to improve credit quality in the near-term, uncertainty remains.

Collingwood still stands on the cusp. Its rating could improve if its outstanding debt is successfully repaid, its reserves are increased, or it demonstrates market access with little or no long-term roll-over risk, Moody’s said.

On the other hand, Moody's could lower its rating if Collingswood fails to repay the outstanding amount or cannot repay or restructure its short-term debt. Other factors that could influence its score include a declining tax base, low financial reserves, or insufficient market access.

Editor's note: This story was updated at 12:08 pm March 8, 2012.