December 10, 2014
According to theCharlotte Business Journal, Moody’s will downgrade Salisbury, N.C.’s bond rating because of the debt held by the city’s government-owned broadband network (GON), Fibrant.
Salisbury’s debt rating will drop four places, from Aa2 to A3, because the “citywide fiber-optic system is straining Salisbury’s ability to pay off the debt to build the system,” the journal says. The Moody’s press release reported, “The network’s continued reliance on other city funds to support operations and debt service requirements has imposed a burden and could present additional pressure to the city’s credit strength.”
The Charlotte Business Journal also noted, “Moody’s says a downgrade is rare for an N.C. city and is usually averted by the oversight of the Local Government Commission, which helps to prevent default on municipal bonds. But the commission doesn’t look at non-essential government operations such as Fibrant, the fiber-optics system, Moody’s says.”
The city “disagreed” with the downgrade thejournal said.
The city’s opposition to Moody’s decision means little. The new, lower debt rating could result in Salisbury paying higher interest rates when it borrows for other capital investment projects.
Moody’s Salisbury decision is, of course, not the first time cities with government-owned broadband have faced ratings’ downgrades. Chattanooga, Tenn.’s rating was downgraded because of its GON while Monticello, Minn. and Burlington, Vt. also faced ratings’ cuts.
According to the Charlotte Business Journal, Fibrant has 2,900 subscribers and cost Salisbury $30 million ($10,345 per subscriber) while the city “is using water and sewer fund revenue to make up for shortfalls in Fibrant’s revenue” and “isn’t living up to projections that it would be self-sustaining.”