Fitch Ratings has assigned a rating of AA+ to a series of general obligation bonds and certificates of obligation issued by the city of Denton, Texas. The agency also affirmed Denton’s issuer default rating and its outstanding bonds at the same AA+ level, maintaining a stable outlook for the municipality.
The new debt issuance totals $477 million and includes $281.26 million in certificates of obligation, $62.715 million in general obligation refunding and improvement bonds, and $133.055 million in general obligation refunding bonds. These securities are scheduled to be sold through a competitive sale process in mid-to-late July.
The AA+ issuer default rating reflects Denton’s financial resilience, which Fitch assesses as AAA. This high resilience score is based on the city’s ample budgetary flexibility and reserves, which consistently exceed the threshold for the highest resilience rating. The city’s demographic and economic indicators present a mixed picture, while its long-term liabilities are currently assessed as the weakest component of its credit profile.
The general obligation bonds and certificates of obligation are direct obligations of the city, payable from an ad valorem tax levied on all taxable property within Denton. The tax rate is limited to $2.50 per $100 of taxable assessed valuation. The certificates of obligation are additionally backed by a limited pledge of surplus net revenues from the city’s utility system, capped at $1,000.
Fitch identified several factors that could lead to a negative rating action. These include a sustained decline in general fund reserve levels below 7.5% of spending, diminished population growth trends, or a sustained 15% increase in long-term liabilities without a corresponding increase in personal income or governmental resources. Conversely, a sustained 45% decrease in long-term liabilities could lead to a positive rating action.
