San Angelo ratings cut to AA as Fitch cites liability burden and weak population trend

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San Angelo ratings cut by Fitch

Highlights

Fitch downgraded San Angelo's Issuer Default Rating and all Fitch-rated debt to 'AA' from 'AA+', citing elevated long-term liabilities and weak post-pandemic population growth.
Fitch warns that general fund reserves falling below 10% of spending or rising long-term liabilities could trigger further negative rating actions despite the current stable outlook.
An upgrade requires about a 15% reduction in long-term liabilities or sustained improvements in demographic and economic trends, particularly in population growth and unemployment rates.

Downgrade reflects balance sheet and demographic pressures

As reported by Fitch Ratings, San Angelo's Issuer Default Rating and all outstanding Fitch-rated debt are downgraded to 'AA' from 'AA+', with a stable outlook.

Fitch says the downgrade reflects the city's elevated long-term liability burden relative to personal income, a sluggish post-pandemic population trend and the removal of a +1 model deviation because these indicators show limited improvement. The agency says modest commercial and residential development is present, but not enough resource base growth is occurring to offset higher liabilities and support a stronger rating category.

Fitch adds that the 'AA' IDR still reflects a financial resilience assessment of 'aaa', based on 'High Midrange' budgetary flexibility and a flexible labor framework. The agency expects the city to maintain unrestricted general fund reserves at or above 10% of spending, although that level remains below San Angelo's historical norm.

Reserve levels and liabilities remain key rating drivers

Fitch says further negative rating pressure could emerge if available general fund reserves fall below 10% of spending, which would reduce its assessment of financial resilience below 'aaa'. Additional downside factors include a sustained and material rise in long-term liabilities without improvement in other rating metrics, as well as weaker demographic and economic performance, including higher unemployment.

Potential for an upgrade depends on roughly a 15% reduction in long-term liabilities at current levels of personal income, governmental resources and spending, or on sustained improvement in demographic and economic trends, especially stronger population growth or unemployment levels that continue to run below the national trend.

The city's general obligation bonds and certificates of obligation are payable from a direct annual ad valorem tax, capped at $2.50 per $100 of assessed valuation on taxable property within the city. The certificates of obligation are also payable from a pledge of surplus net revenues, up to $1,000, from San Angelo's waterworks and sewer system.

Our earlier report on Fitch’s affirmation of Bank of Ireland (UK) plc’s ratings noted that the lender kept its investment-grade standing, supported by strong integration with its parent group and solid capital and funding resilience. We also highlighted Fitch’s view that asset quality should remain robust even as the bank shifts toward higher-margin UK lending, while limited revenue diversification could leave profitability more sensitive to the interest-rate cycle.

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