FRANKLIN—Despite the expected loss of revenue from the closure of International Paper Co.’s Franklin mill, the city is still considered a sound investment, according to two bond rating agencies.

City Manager June Fleming said the ratings are “an affirmation” of the city’s policies.

“This is tremendous news for a city our size with all of the financial issues that are surrounding us,” she said. “We were extremely confident in the policies that the council has set and we were extremely confident in the steps we’ve taken.”

Last month the City Council agreed to move forward with a debt-restructuring plan recommended by Davenport & Co., LLC, a company that provides financial advisory services to the city. The plan allows the city to refinance its bond debt at a lower interest rate and use savings over the next few years to create a reserve fund.

The reserve fund would then be used to cushion the city against projected revenue losses after the mill closes. Under a revenue-sharing agreement with Isle of Wight, Franklin receives a percentage of the tax revenue collected in a 6.37-square-mile area of the county, including IP. Payments from the county to the city have averaged about $1.2 million annually in recent years.

Both Moody’s Investor Services and Standard & Poor’s gave the city favorable credit ratings.

Moody’s upheld the city’s favorable rating from several years ago. The report from Moody’s noted the city’s “well-managed and moderate financial position” and its “manageable debt burden with some self-supporting utility debt.” The report also noted the city’s “limited local economy with high unemployment and low socioeconomic indices.”

“In light of all of the economic news, they have kept that rating unchanged, so that’s very good news,” said Interim Finance Director Amber Stansbury. She said this was the first time Standard & Poor’s rated the city.

“They gave us an A+ rating, and anything in an A range is considered a good rating, especially for a city of this size, so we need to be very, very proud that as a city, we got an A+,” she said.

Councilman Benny Burgess said the council needed to be clear about what would trigger the use of the funds in the reserve.

Tight budgets, some council members noted, might be a temptation to dip into the reserve before the full effect from the loss of IP is realized.

Fleming agreed, adding that the budget for FY2011 will give the council “some really difficult decisions.”

Burgess said he doesn’t want the city to follow in the footsteps of the state government and borrow against the future to cover current budgets.

“In my opinion, we cannot be in that position,” he said.