Maui County Bonds’ Rating RaisedNovember 9, 2010, 9:05 AM HST · Updated November 9, 9:05 AM 0 Comments
Standard and Poor’s, known for its providing of credit ratings and maintaining the S&P 500, announced that it will raise their rating for long-term bonds to AA+ – a rating that insures the utmost of safety. This is an upgrade that has been a long-time coming for the financially savvy Maui County, a county that boasts the lowest property taxes in Hawaii.
Some of you may be wondering, “what does that even mean?” and you would not be alone. In the investment market, a market that S&P is considered a leader in, bond credit rating determines the credit rating essentially of a company. Through the use of this rating, investors determine whether or not that corporation is worthy of receiving bonds. The letter rating system is used to represent the quality of the bond. For example, a rating of AAA is the highest rating and indicates that a company has a strong financial future and will be fully capable of paying off any debts; a rating in the B area would indicate lower potential for paying off debts and would signal to investors that there is some risk involved.
One major reason for Maui County’s debt and its recent slump, is that the county is highly dependent on tourism – a somewhat fickle business. Because tourism often falls in an economic recession, Maui County has a experienced a decrease in tourism which lead to some financial troubles for the county.
By increasing Maui County’s rating, S&P has indicated that investors can trust in Maui County to pay off their debts. S&P based this decision on the fact that Maui County’s council is willing to raise property taxes when necessary, because their property taxes are already the lowest in the state, proving that money is available to pay off debt if necessary. By having this available funding to pay off debt, Maui County proves to investors that they can trust that their money will be repaid.
In addition to the ability to increase property taxes as needed, S&P made this upgrade based on the county’s financial management. The finance director, Kalbert Young noted that the upgrade was deserved and it is indicative of the county’s “strong financial state,” which he attributed to its “conservative management” and “strong fund balances.”
With plans to sell over seventy-five million dollars in general obligation bonds, Maui County plans to use the bonds to refund old bonds, work on paying down the debt of capital bonds, and saving money for future capital expenditures.
Although S&P, and other companies involved in the bond-rating process, has been known for its successful services for the last one hundred and fifty years, there are some people who are critical towards the entire bond rating process, and some go so far as to blame bond-rating companies for the subprime mortgage crisis of 2007, citing biased ratings based on pay offs by certain companies looking for higher ratings. However, this has never been proven and bond-rating companies work to help investors make smart decisions.