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Related Issuers
Rating Action:

Moody's downgrades to Aa1 from Aaa the rating on Hennepin County's (MN) First Lien Sales Tax Revenue Bonds, Series 2007A; assigns stable outlook

Global Credit Research - 27 Jun 2012

Affirms Aa2 rating on second lien and Aa3 rating on third lien sales tax revenue bonds

New York, June 27, 2012 -- Moody's downgrades to Aa1 from Aaa the rating on Hennepin County's (MN) First Lien Sales Tax Revenue bonds, Series 2007A, affecting $147.5 million in outstanding debt. Concurrently, Moody's has affirmed the Aa2 rating on the county's Second Lien Sales Tax Revenue Bonds, Series 2008B, affecting $107.2 million and the Aa3 rating on the county's Third Lien Variable Rate Sales Tax Revenue Bonds, Series 2008C, affecting $53 million. The ratings have been removed from review. The ratings were placed under review for possible downgrade on March 27, 2012 in conjunction with the publication of a new rating methodology for U.S. municipal bonds backed by special tax revenues, "U.S. Special Tax Methodology." A stable outlook has been assigned to all the bonds.

SUMMARY RATING RATIONALE

The Aa1 rating on the Series 2007A bonds reflects the large economic base that generates the pledged revenues, strong nature of special tax pledge that encompasses tangible personal property and services to final users, strong debt service coverage, and a minimally funded debt service reserve fund. The Aa2 rating on the Series 2008B bonds reflects the strong underlying base, adequate coverage ratios and lack of a debt service reserve fund. The Aa3 rating on the Series 2008C bonds have weaker but still above sum-sufficient coverage, variable interest rate risk, and also lacks a debt service reserve fund. Notably, all the bonds benefit from additional liquidity, presence of third party trustee (US Bank, long-term issuer rating Aa2/negative), and strong flow of funds revenues as 1/5th of principal and 1/10th of interest is required to be deposited monthly. The stable outlook represents our belief that the ratings will remain stable given the strong performance of revenue collections and solid coverage levels.

STRENGTHS

* Hennepin County's (GO rated Aaa/stable) important role in the diverse Twin Cities economy

* Legislatively approved sales tax dedicated for certain purposes and sunsets when the bonds are retired or once accumulated reserves are sufficient to pay the bonds

* Adequate projected debt service coverage on third lien, even with conservative no-growth assumptions

* Strong flow and timing of funds includes monthly collection by the state and direct remittance to the trustee, 1/5th principal and 1/10th interest every month

* Additional liquidity partially offsets minimal debt service reserves for the first lien and lack of debt service reserve requirements for the subordinate liens

CHALLENGES

* Minimally-funded debt service reserve fund for First Lien, 0.07x coverage on first lien MADs

* Second lien and third lien lack debt service reserve funds

* For third lien bonds, rating covenant that could trigger a case for termination per Standby Bond Purchase Agreement presents liquidity risk

OUTLOOK

Given strong performance of revenues and strong underlying base, we expect that currently strong coverage and additional liquidity provides cushion against any fluctuating revenues and that coverage will remain healthy.

WHAT COULD MAKE THE RATING GO - UP

- Strengthening of maximum annual debt service coverage on all debt

- Reduction in exposure to variable rate fluctuations

- Strengthening of, or addition of adequately funded debt service reserve funds

WHAT COULD MAKE THE RATING GO - DOWN

- Declines in pledged revenues, weakening debt service coverage

- Opening of revenues to use towards other purposes than currently authorized

- Declining liquidity, especially in the Surplus Account

- Breach of covenants or trigger of events for automatic termination per terms in SBPA

RATING METHODOLOGY

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Soo Yun Chun
Associate Analyst
Public Finance Group
Moody's Investors Service
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Chicago, IL 60606
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Henrietta Chang
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades to Aa1 from Aaa the rating on Hennepin County's (MN) First Lien Sales Tax Revenue Bonds, Series 2007A; assigns stable outlook
No Related Data.

 

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