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MOODY'S ASSIGNS A1 RATING TO CITY OF PORT NECHES' (TX) $4.4 MILLION CERTIFICATES OF OBLIGATION, SERIES 2011

02 Mar 2011

A1 RATING AFFECTS $17.4 MILLION IN OUTSTANDING PARITY DEBT INCLUDING THE CURRENT SALE

Municipality
TX

Moody's Rating

ISSUE

RATING

Certificates Of Obligation, Series 2011

A1

  Sale Amount

$4,400,000

  Expected Sale Date

03/15/11

  Rating Description

Certificates of Obligation, Series 2011

 

Opinion

NEW YORK, Mar 2, 2011 -- Moody's Investors Service has assigned an A1 rating to the City of Port Neches' (TX) upcoming sale of $4.4 million Certificates of Obligation, Series 2011. The rating affects $17.4 million in outstanding parity debt, inclusive of the current sale. Proceeds from the Series 2011 sale of bonds will be used to pay costs associated with various improvement projects around the city including water and sewer improvements, street and parking improvements, and construction of a City hall extension and an emergency operations center.

RATINGS RATIONALE

The Certificates are payable from the proceeds of a continuing, direct annual ad valorem tax levied, within the limits prescribed by law, against taxable property within the city and from a limited pledge of a subordinate lien on the net revenues of the city's waterworks and sanitary sewer system. The rating reflects concentration in the city's moderately sized tax base, the city's sound financial operations with healthy reserve levels, and an above average debt burden that remains manageable.

STRENGTHS

* Sound financial operations and ample reserves

* Rapid retirement of principal debt outstanding

CHALLENGES

*Concentration in moderately sized tax base

*Above average debt burden

DETAILED CREDIT DISCUSSION

CONCENTRATION IN MODERATELY SIZED TAX BASE

We believe that despite a recent decline in taxable value, the city's moderately sized tax base will remain stable in the near term given its favorable location along the Neches River, near the Gulf of Mexico and the cities of Beaumont and Port Arthur. The City of Port Neches is located along the Neches River between the Cities of Beaumont (general obligation rated Aa2) and Port Arthur (Aa3), in Jefferson County (Aa2). The area contains one of the largest concentrations of petrochemical industries in the United States. Petrochemical companies anchor the City's economy and constitute several of the City's largest tax payers. After several years of modest growth, the city's taxable value declined approximately 1.7% in fiscal 2011 to $779 million. When including the recent decline in taxable assessed valuation, as well as an addition 7.2% decline in taxable value from fiscal 2006 to 2007 due to the effects of Hurricane Rita, the five year average annual growth remains positive but modest at 1.41% from fiscal 2006 to 2011. City officials attribute the recent decline to reevaluation of existing properties and a decline in taxable value of the city's largest tax payer, the Huntsman Corporation. The Huntsman Corporation (Moody's rated B1 stable, corporate family rating) is a petrochemical company whose assessed valuation (AV) represents approximately 17.2% of the City's total fiscal 2011 tax base. The top ten taxpayers including the Huntsman Corporation comprise roughly 22.5% of the city's tax base. While the city has substantial concentration of taxable value in chemical manufacturing activities, which is incorporated in the A1 rating, Moody's acknowledges that city officials prudently continue to monitor operations at significant manufacturing facilities as adverse developments could materially impact the tax values of the city.

In addition to the taxable assessed value the City maintains industrial district contracts with companies that are located within its extraterritorial jurisdiction. The companies remit payments in lieu of taxes in exchange for limited services and the promise that their operations will not be annexed unless the City should deem the annexation necessary to promote and protect the general health, safety, and welfare of the persons residing within the City. In FY 2011, the adjusted net assessed valuation of the companies under contract was approximately $341 million, increasing the City's implied tax base to roughly $1.18 billion. In fiscal 2010 approximately 30.7% of the city's General Fund revenues were derived from in lieu of tax contracts and all of the contracts with the companies located in the city's extraterritorial jurisdiction expire on 12/31/2019. Moving forward the city reports several long-term developments including a plan for a riverfront entertainment complex, which may include several hotels, a marina, restaurants, and upscale shopping as well as the Motiva refinery expansion in nearby Port Arthur. In the long-term the developments could positively affect the city's assessed value yet city officials conservatively project a flat assessed value in the near-term.

SOUND FINANCIAL OPERATIONS; AMPLE RESERVES

We anticipate that the city will continue to closely monitor expenditures and manage finances in a conservative manner, which is consistent with historical trends, to ensure sound financial operations and ample reserves are maintained. The city has demonstrated sound financial management in recent years, which is evident in the maintenance of healthy reserve levels. Beginning in fiscal 2006 the city utilized a healthy reserve position to cash fund a land acquisition project and deconstruction of a non-functional facility associated with the land. Despite the draw down in reserves, the city's total General Fund has maintained a healthy balance of $3.89 million at fiscal year-end 2009 (or a healthy 50.0% of fiscal 2009 general fund revenues). City officials report that maintenance of healthy reserves is due to conservative budgeting practices and close monitoring of expenditures. The majority of the city's General Fund revenues are derived from property taxes (41.4%), in lieu of tax contracts (30.7%), and sales tax revenues (10.5%). City officials report an unaudited fiscal year end 2010 (September 30) General Fund balance of $4.15 million (or 56.8% of fiscal 2010 General Fund revenues). Current year to date sales tax collections are trending 7% above budget as the city prudently budgeted a 2% decline in collections for fiscal 2011 when compared to fiscal 2010 returns. The city has a balance budget for fiscal 2011 and does not anticipate the use of cash reserves in the fiscal year. We believe the City's reserves will remain strong given historical trends and managements willingness to maintain a strong balance sheet.

ABOVE AVERAGE YET MANAGEABLE DEBT POSITION WITH RAPID PAYOUT OF PINCIPAL OUTSTANDING

We believe the city's debt position will remain manageable given the city's history of cash funding projects and no plans for future borrowing in the near term. The City's direct debt burden of 2.2% as a percent of fiscal year 2011 full value is above average. The overlapping debt burden of 7.4% is above the national and state averages for similarly rated cities and is attributable to overlapping debt issued by Port Neches-Groves Independent School District. The city currently has no plans for additional borrowing in the near term and payout is above average with 91.7% of principal amortized in the following ten years.

WHAT COULD MAKE THE RATING GO UP

* Growth and diversification in assessed valuation

* Maintenance of sound financial operations and healthy reserve levels

WHAT COULD MAKE THE RATING GO DOWN

* Contraction of assessed valuation

* Contraction of healthy reserve position

KEY STATISTICS:

2010 Estimated Population: 13,040

2011 Full Valuation: $779 million

2011 Full Valuation (Including industrial and personal property): $1.18 billion

2011 Full Value per Capita: $86,858

Direct Debt Burden: 2.2%

Overall Debt Burden: 7.4%

Payout of Principal (10 years): 91.7%

FY 2009 General Fund balance: $3.89 million (50.0% of General Fund revenues)

Unaudited FY 2010 General Fund balance: $4.15 million (56.8% of General Fund revenues)

Post-sale parity debt outstanding: $17.4 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, and public information

proprietary Moody's Analytics 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

James Hobbs
Analyst
Public Finance Group
Moody's Investors Service

Leslie Lukens
Backup Analyst
Public Finance Group
Moody's Investors Service

Toby Cook
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S ASSIGNS A1 RATING TO CITY OF PORT NECHES' (TX) $4.4 MILLION CERTIFICATES OF OBLIGATION, SERIES 2011
No Related Data.
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