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New Issue:

MOODY'S ASSIGNS A Aaa RATING TO THE CITY OF FRANKLIN'S (TN) $16.38 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2010

20 Sep 2010

AFFIRMATION OF THE Aaa RATING AFFECTS APPROXIMATELY $188 MILLION IN PREVIOUSLY ISSUED PARITY DEBT

Municipality
TN

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds, Series 2010

Aaa

  Sale Amount

$16,380,000

  Expected Sale Date

09/20/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Sep 20, 2010 -- Moody's Investors Service has assigned a Aaa rating to the City of Franklin's (TN) $16.38 million General Obligation Refunding Bonds, Series 2010. The bonds are secured by the city's general obligation, unlimited tax pledge. Concurrently, Moody's has affirmed the Aaa rating on the city's $188 million of previously-issued parity debt. Proceeds from the bonds will restructure the city's outstanding Series VI-B-1 Loan Agreement with the Public Building Authority of Sevier County from variable rate to fixed rate debt, as well as refund the city's General Obligation Refund Bonds, Series 2004 for an expected net present value savings of 6.70% of refunded principal.

RATING RATIONALE

The Aaa rating is based on the city's strong financial position, characterized by ample reserve levels, stable and affluent tax base, and manageable debt position.

FINANCIAL POSITION REMAINS STRONG DESPITE REDUCED RESERVES IN FISCAL 2009 AND 2010

Moody's expects the city's financial position to remain strong over the near term, despite an expected decline in General Fund reserves in fiscal 2010. Over the last nine years, the city has been able to internally fund many capital projects as well as maintain reserves in excess of 50% of annual revenues. Strong fiscal and budgetary management has minimized the effects of the economic recession on the city's reserves. Fiscal 2008 ended with a modest surplus of approximately $379,770, increasing reserves to $30.76 million, or a healthy 56.1% of annual revenues. Sales tax revenues were under budget by approximately $2.56 million due to decreased retail sales, although this shortfall was offset by various expenditure savings, including $1.0 million in the elimination of employee positions. For fiscal 2009, the city finished with an operating deficit of $2.0 million, decreasing total General Fund balance to $28.76 million, or 56.2% of annual revenues. Sales tax revenues underperformed budget for the second year by approximately 4%, or $940,000. State sales tax and property tax revenues also underperformed modestly. The fiscal 2010 budget includes $3.18 million in appropriated fund balance ($1.18 million for capital purposes and $2.0 million for an additional retirement contribution), $22.38 million in sales tax revenues (1.3% increase over fiscal 2009 budget), $11.78 million in property tax revenues (7.5% increase over fiscal 2009 budget) and $3.77 million in business tax revenues (1.1% increase over fiscal 2009 budget). Management projects that the city will finish close to budget, decreasing General Fund balance to $25.5 million, or approximately 50.44% of annual revenues. A Debt Service Fund was established in fiscal 2010 and approximately $3.0 million annually will be deposited into this fund for payment of General Fund debt service.

Over the last five years, the city has adopted a formal General Fund reserve policy that establishes an Emergency Reserve and a Cash Flow Reserve, which combined must equal at least 33% of General Fund operating revenues, which Moody's views as a healthy amount. The policy also establishes a Property and Casualty Insurance Reserve of at least $2.06 million and a Retiree Health Benefit Reserve of $1.03 million. Even though these policies provide support for the city's ongoing financial health, continued utilization of reserves could eventually affect financial flexibility and reduce credit quality.

WEALTHY NASHVILLE SUBURB EXPERIENCING CONTINUED GROWTH

Moody's expects the city to continue to experience growth in its affluent, $9.04 billion tax base, based on strong demographic trends and available land for development. Located approximately 20 miles south of Metro Nashville-Davidson County (G.O. rated Aa1/rating under review for downgrade), Franklin serves as the county seat of Williamson County (G.O. rated Aaa). Benefiting from Nashville's growth, Franklin's population has grown steadily, from 20,098 in 1990 to an estimated 56,219 in 2009. Assessed values have increased an average of 11.6% over the past five years, driven by residential and commercial development as well as a reassessment in 2006. Officials believe the city still has tremendous growth potential given current and projected development projects and ample land for additional development. Residential development has slowed over the last year, a direct result of the national recession and depressed housing market. Permits in 2009 decreased to 116 (615 in 2007) and were valued at $85.2 million ($515.6 million in 2007). Retail and commercial real estate has remained fairly strong, with vacancy rates of less than 5% and 14%, respectively. Several retail expansions were delayed in 2008 and 2009 due to the recession, but are expected to continue in 2010.

During the first weekend of May 2010, the middle Tennessee region experienced record rainfall that caused major flooding issues in many areas in Williamson County, including the City of Franklin. The city estimates that total property damages to private property may reach approximately $16.6 million covering 441 structures. Very little damage occurred in the major commercial centers of the city, including the Cool Springs Mall. Damage to government-owned facilities are estimated to total $879,900, of which approximately $500,000 was damage to park facilities and $231,000 was to city streets. At the present time, management believes that insurance will cover the majority of the damages to governmental properties and facilities, with the exception of an estimated $25,000 deductible. Officials expect that for any costs that are not reimbursed by insurance, FEMA will cover 75% and the State of Tennessee will cover 12.5%. Proration of property taxes is not expected to be of particular concern, given only about 30 properties have damage to 50% of more of the value of the structure. Moody's will continue to monitor the estimated repair costs, as well as reimbursements received from insurance to ensure that the city's financial position remains strong.

The tax base is well diversified, with the top 10 tax payers accounting for only 9.15% of the total, and no single taxpayer accounts for more than 1.9% of the base.

Further stabilizing the tax base are numerous employment opportunities for city residents both within Franklin and Metro Nashville. While unemployment has increased, at 7.6% it remained below state (10.1%) and national (9.6%) levels through June 2010. Franklin enjoys one of the highest Per Capita Income levels in Tennessee, at 141% of the state; Median Family Income is a 160% of the state. Full value per capita is a strong $160,876.

MANAGEABLE DEBT POSITION; TWO SWAPS OUTSTANDING

Moody's expects the city's debt burden to remain manageable over the near term given modest future debt plans. Direct debt burden, taking into account the self-supporting nature of its water and sewer debt, which represents approximately one-third of total outstanding debt, is average at 1.5% of full value. The overall debt burden, which includes debt of overlapping entities, is average at 3.6%. Principal is amortized at a below average rate, with 46.3% retired in 10 years. The city expects to issue an additional $18.0 million in new money debt in mid-2011. The city's debt profile is composed of approximately 36.37% variable rate debt and 63.63% fixed rate debt.

In 2005, the city entered into an interest rate swap agreement with SunTrust Bank (Senior Unsecured rating of Baa1) in conjunction with a variable rate loan from the City of Lawrenceburg Public Building Authority. Under the agreement, the city makes monthly payments based on a fixed rate of 3.65% and receives monthly payments based on 75% of LIBOR. The notional amount is $4.5 million and expires on July 1, 2020. The terms of the swap include the standard termination events, only the city can terminate the swap at its discretion.

In 2007, the city entered into its second interest rate swap agreement with Depfa Bank (Senior Unsecured rating of A3) in conjunction with its Local Government Public Improvement Bonds, Series 101-A-1 variable rate revenue bonds. Under the agreement, the city makes monthly payments based on a fixed rate of 3.59% and receives monthly payments based 63% of the 5-year LIBOR. The notional amount is $20.0 million and expires on June 1, 2037. The terms of the swap include the standard termination events, only the city can terminate the swap at its discretion.

KEY STATISTICS

2009 estimated population: 56,219

2010 full valuation: $9.04 billion

Full value per capita: $160,876

Direct debt burden: 1.5%

Overall debt burden: 3.6%

Payout of principal (10 years): 46.3%

FY 2008 General Fund balance: $30.76 million (56.1% of General Fund revenues)

FY 2009 General Fund balance: $28.76 million (56.2% of General Fund revenues)

Median Family Income as percentage of state: 159.5%

Per Capita Income as percentage of state: 140.6%

Unemployment rate, June, 2010: 7.6%

Post-sale Parity Debt outstanding: $188.82 million

PRINCIPAL METHODOLOGY

The principal methodology used in assigning the rating was General Obligation Bonds Issued by U.S. Local Governments, published on October 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

REGULATORY DISCLOSURES

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

Christopher Coviello
Analyst
Public Finance Group
Moody's Investors Service

Robert Weber
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 A Aaa RATING TO THE CITY OF FRANKLIN'S (TN) $16.38 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2010
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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