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MOODY'S ASSIGNS Aa3 RATING TO MOORE COUNTY'S (NC) $37 MILLION LIMITED OBLIGATION BONDS, SERIES 2010

Global Credit Research - 27 Sep 2010

Aa2 rating affirmation applies to $91.9 million in General Obligation debt outstanding

County
NC

Moody's Rating

ISSUE

RATING

Limited Obligation Bonds, Series 2010

Aa3

  Sale Amount

$37,035,000

  Expected Sale Date

09/30/10

  Rating Description

LIMITED OBLIGATION BONDS

 

Opinion

NEW YORK, Sep 27, 2010 -- Moody's Investors Service has assigned a Aa3 rating to Moore County's (NC) $37 million Limited Obligation Bonds, Series 2010. Concurrently, Moody's has affirmed the Aa2 rating on $91.9 million of outstanding rated General Obligation debt. The Limited Obligation Bonds (LOBs) are secured by installment payments from Moore County, subject to annual appropriation, and by recourse to essential public safety complex, including the sheriffs headquarters, 911 communications center, EMS and Fire as well as a detention center.

RATINGS RATIONALE

The Aa3 rating reflects the essential nature of the pledged assets, adequate legal provisions for bondholders, and the county's sound long-term credit profile. Proceeds of the Series 2010 LOBs will finance the acquisition, construction and equipping of a public safety complex for the police, fire, and EMS departments as well as various utility projects throughout the county. The Aa2 rating reflects the county's strengthened financial position, supported by healthy fund balance levels and the adoption of comprehensive fiscal policies, and further considers the county's sizeable economic base, anchored by golfing tourism and health care sectors, and a debt position that is expected to remain below average despite future borrowing plans.

ADEQUATE LEGAL PROTECTIONS FOR BONDHOLDERS; PLEDGED COLLATERAL INCLUDES ESSENTIAL ASSETS

The limited obligation bonds are being issued pursuant to North Carolina State Statute 160A-20. The bonds are not Certificates of Participation (COPs) and the structure does not involve a third party non-profit entity. Under the terms of the Trust Agreement and the First Supplemental Trust Agreement, the county will pay principal and interest on the bonds directly to the Trustee. Moody's rating assignment factors the clean opinion on the validity of the bonds issued by an established North Carolina bond counsel. The bonds are secured by the county's pledge to annually appropriate debt service payments and by a first lien on pledged collateral, which includes a public safety complex (not yet constructed). Upon completion of the complex, total collateral available to bondholders in the event of non-appropriation is expected to be $28.7, creating a satisfactory asset-to-loan ratio of 85.8%.

Under the terms of the Trust Agreement, the County Manager is required to include principal and interest payments on the bonds in each recommended budget for the life of the bonds. The Board of Commissioners may delete the appropriation only through an express resolution on a roll call vote. If the county fails to appropriate or to make debt service payments, the Trustee can accelerate payments and may institute foreclosure proceedings and apply the proceeds of sale to the balance of payments due under the bonds. According to the First Supplemental Trust Agreement, the county will make debt service payments to the Trustee no later than the 5 days preceding month that debt service payments are due. The Trust Agreement and Deed of Trust allow for a release of assets from the collateral pool if the appraised value of the remaining assets comprises no less than 50% of the aggregate bonds then outstanding. There is no debt service reserve requirement.

HEALTHY FINANCIAL POSITION STRENGTHENED WITH FISCAL POLICY ADOPTION

Moore County's sound financial position is supported by the recent adoption of comprehensive fiscal policy guidelines and the achievement of target fund balance levels following a period of fiscal improvement. From fiscal 2004 to fiscal 2008, positive revenue variance and expenditure savings enabled the county to enhance General Fund balance by a combined $22 million, despite annually appropriating from reserves to balance the operating budget. In particular, the over performance of economically-sensitive sales tax revenues and investment income supported the regular replenishment of monies budgeted from fund balance and contributed to solid annual operating surpluses averaging $3.3 million. Accordingly, General Fund balance increased to $34.1 million at the close of fiscal 2008, equal to a healthy 38% of fund revenues. The county further solidified its financial position with the adoption of a structurally-balanced fiscal 2008 budget, signifying the achievement of a multi-year objective to eliminate the use of reserves for budget balancing. At the outset of fiscal 2009, the county's governing board implemented fiscal policy guidelines that require the county to maintain undesignated General Fund balance at a minimum 15% and a targeted 20% of budget. The policies further limit the application of fund balance above the 20% level to non-recurring uses and require the county to replenish a deficiency below the 15% benchmark within three years. In accordance with the policy guidelines, the county adopted a structurally-balanced fiscal 2009 budget and subsequently appropriated $7.6 million from available fund balance toward a Capital Reserve Fund for future pay-as-you-go uses. Consistent with the new fund balance policy fiscal 2009 ended with a $4.9 million decline in General Fund balance to $29.2 million (33.3% of revenues) due to the transfer of $8.7 million to the Capital Reserve Fund. On an operational basis fiscal 2009 ended with a $3.6 million surplus despite the decline of $3.7 million in economically sensitive sales tax revenues. Management was able to offset the decline in revenues with the deferral of capital expenditures, a spending freeze and overall budget management reduction strategies. Management reports that fiscal 2010 has ended (June 30th fiscal year end) with a $857,000 addition to General Fund balance despite revenues being under budget by $2.4 million.

The fiscal 2011 budget represents a decrease of $1 million from the previous year (budget-to-budget) and is balanced with the use of $487,000 of fund balance and $2.5 million in net inter-fund transfers. Management has budgeted sales tax at $13 million for fiscal 2011, a $1.3 million reduction from the previous year's budget, however it represents a slight increase ($600,000) over estimated actual collections for 2010. The county's primary sources of revenue are property taxes (62.2%), which has historically realized strong collection rates (99% annually), and sales tax (17%), which have been declining in recent years.

TOURISM AND HEALTH CARE SECTORS ANCHOR LOCAL ECONOMY; GROWTH OF RETIREE POPULATION SUPPORTS ECONOMIC EXPANSION

Located in central North Carolina approximately 65 miles southwest of the City of Raleigh (G.O. rated Aaa), Moore County has experienced steady economic expansion during recent years, including healthy tax base growth and employment gains. Moody's expects economic expansion to moderate going forward, in line with regional trends; however, the county's role as a health care center and its proximity to an expanding military installation provide institutional stability. The full market value of the county's tax base has more than doubled since fiscal 2000 to $11.5 billion as of fiscal 2010, boosted by 36% growth in fiscal 2004 and 32% growth in fiscal 2008 as a result of the county's four-year reassessment cycle. Going forward the county will reassess every eight years instead of four. Tax base growth in non-reassessment years has averaged a more moderate 3.6% annually and reflects the impact of residential and commercial construction. The county is home to a large golfing tourism sector - anchored by the Pinehurst Resort which will host the 2014 USGA Men's and Women's U.S. Open golf championship - and officials report that the existing 44 golf courses are a cornerstone of the county's ability to attract a growing, wealthy retiree population. Approximately 22% of the county's population is over the age of 65 (as compared to 12% of state and national populations) and the recent growth of this age cohort has spurred expansion of the health care sector, including new construction around the flagship hospital of FirstHealth of the Carolinas (rated Aa3/stable outlook), a regional health care network that employs 1,800 locally and serves a 15-county area. The southeastern border of the county adjoins Fort Bragg, a U.S. Army installation that is scheduled to gain a net 12,569 military jobs and 1,405 civilian jobs with implementation of the Department of Defense Base Realignment and Closure (BRAC) 2005 recommendation to relocate the Headquarters U.S. Army Forces and the Headquarters U.S. Army Reserve Command to the base. Officials believe that the county is well positioned to gain both population and commercial investment as a direct result of the base expansion. The county's per capita and median family income levels approximate state and national norms and the June 2010 unemployment rate of 9.1% is above historical averages but remains below the 10.1% statewide and 9.6% national rates for the same period.. Full value per capita of $132,906 is nearly double the statewide median for similarly-rated credits, reflecting the prevalence of commercial properties and high-value homes.

DEBT POSITION EXPECTED TO REMAIN MANAGEABLE

Moody's expects the county's debt position to remain manageable, given the sizeable tax base. The current offering increases the county's debt burden to a modest 1.2% of full valuation, including the overlapping debt of municipalities and other jurisdictions. Amortization of debt is below average, with 50.4% of principal retired within 10 years, and debt service comprised a reasonable 9.4% of fiscal 2009 operating expenditures. The county expects the next debt issuance to come to market in the next two to three years. The county is not party to any derivative agreements and all outstanding debt is in a fixed-rate mode.

WHAT COULD MAKE THE RATING GO UP

-Significant increase in income levels.

-Adherence to fund balance policies.

-Material improvement to tax base and demographic profile

WHAT COULD MAKE THE RATING GO DOWN

-Declines in General Fund balance.

-Significant declines in tax base.

KEY STATISTICS

2008 population (est.): 86,754 (16% increase over 2000)

Fiscal 2010 full valuation: $11.5 billion

Fiscal 2010 full valuation per capita: $132,906

June 2010 unemployment: 9.1%

1999 Median Family Income: $48,492 (105% of state, 97% of nation)

1999 Per Capita Income: $23,377 (115% of state, 108% of nation)

FY 2009 General Fund balance: $29.2 million (33.3% of General Fund revenues)

Overall debt burden: 1.2%

Payout of principal (10 years): 50.4%

General obligation bonds outstanding: $91.9 million

The principal methodology used in rating Moore (County of) NC was The Fundamentals of Credit Analysis for Lease - Backed Municipal Obligations rating methodology published in October 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Robert Weber
Analyst
Public Finance Group
Moody's Investors Service

Conor McEachern
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa3 RATING TO MOORE COUNTY'S (NC) $37 MILLION LIMITED OBLIGATION BONDS, SERIES 2010
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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