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New Issue:

MOODY'S ASSIGNS Aa1 RATING TO PRINCE WILLIAM COUNTY'S (VA) $16.1 MILLION REFUNDING LEASE PARTICIPATION CERTIFICATES, SERIES 2010

10 Sep 2010

Aa1 RATING AFFECTS APPROXIMATELY $120 MILLION PARITY RATED COPS, INCLUDING CURRENT ISSUE

County
VA

Moody's Rating

ISSUE

RATING

Refunding Lease Participation Certificates Series 2010

Aa1

  Sale Amount

$16,100,000

  Expected Sale Date

09/21/10

  Rating Description

Lease Participation Certificates

 

Opinion

NEW YORK, Sep 10, 2010 -- Moody's Investors Service has assigned a rating of Aa1 to Prince William County's (VA) $16.1 million Refunding Lease Participation Certificates, Series 2010. At this time, Moody's has also affirmed the Aa1 rating on the county's $105 million outstanding, parity rated lease revenue bonds and certificates of participation. Concurrently, Moody's has also affirmed the Aaa rating on Prince William County's approximately $716 million in outstanding general obligation debt as well as the Aa2 rating assigned to both $13.5 million in moral obligation lease revenue bonds issued by the Prince William County Park Authority and $8 million in outstanding lease revenue bonds.

RATINGS RATIONALE

Moody's believes satisfactory legal provisions govern the security of the certificates. The lease participation certificates are secured by basic rental payments of Prince William County, which are subject to annual appropriation. These payments are between Prince William County and Crestar Bank, which has been succeeded by U.S. Bank N.A. (Senior Unsecured rated Aa1/on watch for possible downgrade); the former has assigned its rights and property under the leases to the trustee pursuant to the 1995 Trust Agreement. Leasehold interests in the following facilities are pledged for the total parity debt outstanding: the county's juvenile detention facility, judicial center and the Owens Building, among others. Covenants that instruct the Board of Supervisors to include the lease payments in the budget for the life of the bonds are designed to mitigate the risk of non-appropriation. Lease payments, which are made directly to the trustee, are due 5 days prior to debt service payments. There is no debt service reserve requirement for the current issue. Proceeds are expected to refund the county's Lease Participation Certificates of 2002 for an expected net present value savings of approximately 8.4% of refunded principal (or roughly $1.3 million), without extension of maturity.

The Aa1 rating for this issue and parity lease revenue and COP debt incorporate the county's strong long-term credit characteristics and the risk of non-appropriation as well as the essential nature of pledged assets. The Aa2 lease revenue rating reflects the non-essential nature of related pledged assets, while the Aa2 moral obligation rating reflects the County's demonstrated commitment to funding park operations and debt service. Prince William County's Aaa general obligation rating reflects the county's sizeable, wealthy tax base experiencing contraction; strong financial flexibility supported by effective management and ample reserve levels; and manageable debt burden.

FAVORABLY LOCATED TAX BASE WITH LONG-TERM GROWTH POTENTIAL DESPITE RECENT DECLINES IN ASSESSED VALUES

Responding to regional and national economic pressures, development in the county's sizeable, wealthy tax base has slowed dramatically, and overall valuations have dropped resulting in sizeable assessed valuation contraction. Prince William's 2010 assessed valuation of $40 billion incorporates declines of 8.7% and 24.7%, respectively, in 2009 and 2010, reflecting weakening in both residential and commercial sectors. Rapid market value appreciation and record residential building activity drove impressive double-digit annual growth through 2007 as new residents flocked to relatively more-affordable properties in this outer suburb of Washington D.C (G.O. rated Aa2/stable outlook). Positively, Moody's believes that Prince William County's efforts to diversify the economy and resulting commercial development will partially offset the impacts of the region-wide real estate downturn; preliminary estimates for 2011 show an additional modest assessed value decline of 2.5% (compared with a 25.2% drop in 2010). While non-retail commercial vacancy rates rose to 13% in fourth quarter 2009, this largely reflects growing inventory and remains consistent with rates within the region. The county has announced 315 new projects, which are expected to generate in excess of 3,602 new jobs and $803 million in capital investment in the medium term. Industries targeted for significant expansion include life sciences and data storage, as well as the defense-related sector. Over the past five years the county has added 4,666 new jobs, and the county's 5.9% unemployment rate as of June 2010 remains below commonwealth and national averages of 7.1% and 9.6%, respectively. Demographics show high resident wealth, with per capita income at approximately 107% of the state level and 74% of the very-high Northern Virginia average. With the county's proactive efforts to promote and diversify its tax base and resulting commercial development, Moody's believes Prince William's economy remains well positioned for long term growth.

FISCAL 2011 BUDGET GAP RESOLVED; FINANCIAL POSITION EXPECTED TO REMAIN STRONG

Moody's anticipates that the experienced management team's history of prudent fiscal management will ensure maintenance of strong fiscal flexibility, despite tax base contraction and sales tax declines. The county added to General Fund balance in 11 of the past 13 fiscal years. The only reductions occurred in fiscal 2006 and 2008 when the county recorded minor fund balance reductions of $3 and 8 million, respectively, largely due to capital spending. Additionally, the county maintains its undesignated general fund balance goal of 7.5% of the operating budget. The county maintained structural balance in fiscal 2009 despite modest revenue shortfalls in sales and communications taxes. Contributing to the $37 million surplus were a $4.8 million favorable revenue variance and $33 million in unspent expenditure appropriations, replenishing the General Fund balance to $168 million, a healthy 18.5% of General Fund revenues. Although property tax rates had dropped in the earlier part of the decade, the fiscal 2008 budget included the county's first property tax increase in over a decade, raising the rate to $0.787 from $0.758 per $100 assessed value. As property values dropped further, the county raised property tax rates gradually to $1.212 in fiscal 2010, with a modest additional increase to $1.236 adopted for fiscal 2011. Since fiscal 2007, $143 million in capital and operating costs have been trimmed from annual operating budgets to maintain structural balance and preserve long-term financial flexibility. The county maintains a revenue stabilization fund (designated in General Fund balance) with a minimum target of 1% of General Fund revenue. This reserve may be used to cover unexpected declines in General Fund revenue which are greater than 3% of the adopted budget, although any draw must be fully replenished within five years. Although draws on the reserve have been made in recent years, roughly $18.1 million has been added to the fund since fiscal 2007. The reserve's balance is projected at $14.3 million at fiscal 2011 year-end, representing 1.8% of revenue (pro forma).

Given strong performance of economically-sensitive revenues during the latter half of fiscal 2010 (year ended June 30), county officials anticipate a favorable General Fund variance of nearly $1 million. Given judicious expenditure controls as well conservative expenditure budgeting, management believes that fiscal 2010 budgetary savings will be in line, and may slightly exceed, historical General Fund expenditure savings which have averaged $25 million annually since fiscal 2000. The county expects to absorb the revenue reduction and comfortably maintain a 7.5% undesignated balance; strategies to manage expenditures and improve operational efficiency have included personnel reductions, increasing reliance on technology and lease savings. Although state education funding increased by roughly $23 million management faced an initial budget gap of $17.1 million heading into fiscal 2011, driven primarily by assessed valuation declines and generally weak real estate, personal property and other economically sensitive taxes. The gap has been addressed through a 2.4 cent increase in the tax rate, generating roughly $4 million, a $7.4 million increase in appropriation from reserves, and expenditure reductions across most departments, excluding public safety and human services. The fiscal 2011 budget remained essentially flat (a 0.15% reduction over 2010), mostly driven by a $2.3 million reduction to the school which was effectively offset by a general government increase of $1.1 million. The use of multi-year forecasting tools and frequent budgetary monitoring are indicative of the county's careful financial management practices, and Moody's expects continued financial stability despite current economic uncertainties.

MODERATE DEBT BURDEN REFLECTS CONSERVATIVE DEBT POLICIES

The county has adopted comprehensive debt policies which are a key factor in supporting Prince William's strong long-term credit profile. Direct debt burden, at 1.5% of full valuation, remains manageable due to rapid amortization and careful debt planning. Amortization of principal is average with about 66.8% of general obligation debt retired within 10 years. Moody's expects the county's debt burden to remain manageable throughout the implementation of its scaled-back $765 million, 2011-2016 capital improvement plan, 63% of which is expected to be debt-financed. However, following the current issue Prince William does not plan to issue additional general obligation debt until tax base growth and economic activity resume. The county maintains conservative debt management practices in order to ensure that debt remains manageable as a percentage of annual expenditures (under 10%) and that debt burden remains under 3% of assessed value. The majority of the six-year CIP will go to school projects.

KEY STATISTICS

2007 population (estimate, US census): 360,411 (+28.3% since 2000)

2009 full valuation: $64.7 billion

Full valuation per capita: $179,728

Direct debt burden: 1.5%

Payout of general obligation principal (10 years): 66.8%

Fiscal 2009 General Fund balance: $168 million (18.5% of General Fund revenues)

Fiscal 2009 Undesignated General Fund balance: $67 million (7.3% of General Fund revenues)

1999 County median family income: $71,622 (132% of VA, 143% of US)

1999 County per capita income: $25,614 (107% of VA, 119% of US)

Unemployment, June 2010: 5.9% (7.1% VA, 9.6% US)

Long-term debt outstanding: approximately $980 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Prince William (County of) VA 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.

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

Outlook

The outlook remains stable for Prince William County and reflects Moody's expectation that the county will continue to maintain its long-term financial strength and flexibility, despite declining tax base valuations, due to the strength and stability of the local economy which includes government, military, higher education and related facilities, an effective and conservative approach to management and a favorable debt profile.

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

Cesar Avila
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
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 Aa1 RATING TO PRINCE WILLIAM COUNTY'S (VA) $16.1 MILLION REFUNDING LEASE PARTICIPATION CERTIFICATES, 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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