Rating Action: Moody’s upgrades Henderson issuer rating to A1

Moody’s Investors Service has upgraded the City of Henderson, TN’s issuer rating to A1 from A2. The issuer rating reflects the city’s credit quality and ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. This action concludes a review that was initiated on November 3, 2022 in conjunction with the release of the US Cities and Counties Methodology. The city has approximately $2.5 million in outstanding debt as of June 30, 2021. The ratings under review outlook has been removed.
RATINGS RATIONALE
The upgrade of the issuer rating to A1 reflects the city’s strong finances and highly manageable leverage. Fiscal 2021 ended with an increase in available fund balance and liquidity given strong revenue performance (particularly sales taxes) and conservative budgeting. Sales taxes are the city’s single largest revenue source at 22% of governmental revenues and property taxes are the second largest at 14%. The city’s fiscal 2021 Available Fund Balance ratio was a strong 82% of annual revenues and its Liquidity ratio was 77%. Management projects that fiscal 2022 General Fund performance continued this trend of robust sales tax collections and therefore anticipates another operating surplus and increase in reserves and liquidity. Total General Fund balance is projected to have ended at approximately $4.8 million (unaudited). Business type activities are also projected to have performed well in fiscal 2022, however, they have only a moderate impact on the general day-to-day operations of the city. The current fiscal year’s (2023) budget is similar to past years and remain conservative in nature. Officials anticipate ongoing sales tax and property tax strength which should provide for a modest increase in reserves at a minimum.
The city’s Long-Term Liabilities ratio is low at 96% of annual revenues and expected to remain affordable over the next several years given a lack of any significant new debt issuances. Pension and OPEB (other post employment benefits) are also very manageable and are not expected to increase in any substantial fashion in the next two years. The city’s Fixed Cost ratio is also very affordable at 3.1% of revenues.
The rating also incorporates the city’s limited, but moderately expanding economic base outside of Memphis (Aa2 stable). The gross domestic product of the city’s metropolitan area is expanding at a moderately slower pace than that of the nation over the last five years. Full value per capita within the city is below average at $49,836. Resident income levels as measured by median household income (adjusted for regional price parity), is below average for the rating category at 78% of the nation.