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MOODY'S ASSIGNS A2 UNDERLYING RATING AND ASSIGNED A POSITIVE OUTLOOK TO THE CITY OF EAGLE PASS' (TX) $6.89 MILLION GENERAL OBLIGATION TAX REFUNDING BONDS, SERIES 2010.

06 Oct 2010

RATING AFFECTS $13.3 MILLION IN OUTSTANDING PARITY DEBT, INCLUDING CURRENT REFUNDING

Municipality
TX

Moody's Rating

ISSUE

RATING

General Obligation Tax Refunding Bonds, Series 2010

A2

  Sale Amount

$6,895,000

  Expected Sale Date

10/11/10

  Rating Description

General Obligation Tax Refunding Bonds, Series 2010

 

Opinion

NEW YORK, Oct 6, 2010 -- Moody's Investors Service has assigned an A2 underlying rating and assigned a positive outlook to the City of Eagle Pass' (TX) $6.89 million General Obligation Tax Refunding Bonds, Series 2010. Concurrently, we have affirmed the A2 underlying rating on $6.4 million in outstanding parity debt. The rating also takes into account an additional $10.2 million of outstanding parity debt not rated by Moody's.

RATING RATIONALE

The rating reflects the city's moderately sized tax base with below average wealth levels and manageable debt burden. The positive outlook reflects recent improvement in the city's financial position despite historic General Fund reliance on economically sensitive revenues. Proceeds from the sale of the bonds will be used to refund the district's Combination Tax and Limited Revenue Certificates of Obligation, Series 2007 for a net present value savings and no extension of final maturity. The bonds constitute direct obligations of the city payable as to principal and interest from an ad valorem tax levied, within the limits prescribed by law, against all taxable property in the city.

MODERATELY-SIZED TAX BASE ALONG US/MEXICO BORDER REMAINS STABLE; SOCIOECONOMIC INDICES WELL BELOW STATE AND NATIONAL AVERAGES

Despite recent contraction, Moody's believes the city's tax base will continue to remain stable over the medium term given its location along the Texas/Mexico border and continued development associated to the border crossing. The City of Eagle Pass is located approximately 120 miles west of San Antonio (G.O. rated Aaa) along the Texas/Mexico border across from Piedras Negras, Mexico. The city's assessed value (AV) declined to $1.04 billion down from $1.05 billion or a 1.3% decline from the prior year. City officials report the loss in taxable value was attributed to reevaluation of existing properties. The city's top ten taxpayers represent 13.3% of the city's total 2010 assessed valuation. City officials also report the Modelos brewery began operations in fiscal 2010 and several new hotels will begin operations in fiscal 2011 to meet demand for hotel rooms in association with the local casino. We believe the city will experience modest tax base growth over the near to medium term as cross-border trade activity slowly recovers.

Population has increased a healthy 17.2% since the 2000 U.S. Census to an estimated 26,285 residents in 2009. Wealth levels are well below average as measured by per capita income and median family income (from 2000 U.S. Census) that approximate 58.2% and 59.2% of the state averages, respectively. The July 2010 unemployment rate of 13.8% remains above the state (8.5%) and the U.S. (9.6%) for the same time period.

IMPROVEMENT IN FINANCIAL POSITION DESPITE SIGNIFICANT RELIANCE ON ECONOMICALLY SENSITIVE REVENUES

Despite recent declines in economically sensitive revenues, we expect the city's financial performance to remain stable in the near term given management's commitment to maintain healthy reserve levels. The General Fund balance at FYE 2009 (September 30) was $3.8 million, or a healthy 24.4% of revenues. Fiscal 2009 General Fund revenues were largely derived from a historic transfer in from the Toll Bridge Fund (28.4%), sales tax collections (22.9%), and property taxes (20.6%). City officials report declines in both sales tax revenues and in toll bridge revenues for fiscal 2010, however, management anticipates maintaining the General Fund balance of approximately $3.8 million at FYE 2010. Monthly sales tax collection data indicate a return to more stable sales tax collections in late fiscal 2010. Moving forward, the preliminary fiscal 2011 budget is structurally balanced including transfers into the General Fund from the Toll Bridge Fund and conservatively assumes a 90% current collection rate of property taxes. City officials project to maintain $3.8 million in total General Fund balance in fiscal 2011, which is management's informal goal of maintaining three months of operating expenditures in reserve. Future credit reviews will examine management's ability to closely monitoring revenues and make necessary adjustments in expenditures in order to maintain ample financial reserves. We believe maintenance of above-average reserves is necessary given the city's reliance on economically sensitive revenues.

AVERAGE DEBT BURDENS REMAIN MANAGEABLE

The city has $23.5 million in post-sale general obligation debt. $4.9 million of the city's outstanding general obligation debt are variable rate bonds issued in fiscal 2010. The variable rate bonds are non-puttable and reset every five years beginning March 01, 2015. The direct debt burden of the city is average at 2.2% direct and elevated when including overlapping debt at 7.7%, due mainly to overlapping debt of the local school district. Debt burdens are calculated using fiscal 2011 taxable values. Payout is slightly below average with 56.7% of principal retired in ten years. City officials anticipate the need for future borrowing moving into fiscal 2011 and 2012 for street improvements and general infrastructure upgrades yet no specific plans have been determined to date. We expect the city's debt burden will remain manageable in the near term.

OUTLOOK

The positive outlook reflects an improved General Fund balance and strengthened liquidity within the reserve. We believe that management's willingness and ability to establish a trend of maintaining this healthy level will place upward pressure on the rating.

WHAT COULD CHANGE THE RATING-UP:

*Substantial tax base growth and diversification

*Managing expenditures to reduce reliance on toll bridge revenues

*Maintaining healthy General Fund reserves

WHAT COULD CHANGE THE RATING-DOWN:

*Tax base contraction

*Increased reliance on sales tax and toll bridge revenues without corresponding augmentation of reserves

*Deterioration of General Fund reserves

KEY STATISTICS:

2009 Estimated Population: 26,285

FY 2011 Full Value: $1.04 billion

Full Value per Capita: $39,153

Per Capita Income (2000 U.S. Census): $11,414 (58.2% of state; 52.9% of U.S.)

Direct Debt Burden: 2.2%

Overall Debt Burden: 7.7%

Payout of Principal (10 years): 56.7%

FYE 2009 General Fund Balance: $3.8 million (24.4% of General Fund revenues)

Projected FYE 2010 General Fund Balance: $3.8 million (24% of General Fund revenues)

Post-sale Parity Debt Outstanding: $18.6 million

PRINCIPAL METHODOLOGY AND LAST RATING ACTION

The principal methodology used in rating Eagle Pass (City of) TX was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. 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, parties not 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

James Hobbs
Analyst
Public Finance Group
Moody's Investors Service

Kristin Button
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS A2 UNDERLYING RATING AND ASSIGNED A POSITIVE OUTLOOK TO THE CITY OF EAGLE PASS' (TX) $6.89 MILLION GENERAL OBLIGATION TAX REFUNDING BONDS, SERIES 2010.
No Related Data.
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