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MOODY'S ASSIGNS Aa1 RATING WITH STABLE OUTLOOK TO ST. LOUIS COUNTY (MO) $2.29 MILLION TAXABLE SPECIAL OBLIGATION BABS (TRANSPORTATION PROJECTS), SERIES 2010M AND $3.71 MILLION TAXABLE SPECIAL OBLIGATION RZEDS (TRANSPORTATION PROJECTIONS, SERIES 2010N

10 Dec 2010

Aa1 RATING APPLIES TO $192.1 MILLION IN OUTSTANDING SPECIAL OBLIGATION DEBT

County
MO

Moody's Rating

ISSUE

RATING

Taxable Special Obligation Build America Bonds (Transportation Project), Series 2010M

Aa1

  Sale Amount

$2,290,000

  Expected Sale Date

12/14/10

  Rating Description

Annual Appropriation

 

Taxable Special Obligation Recovery Zone Economic Development Bonds (Transportation Projects), Series 2010N

Aa1

  Sale Amount

$3,710,000

  Expected Sale Date

12/14/10

  Rating Description

Annual Appropriation

 

Opinion

NEW YORK, Dec 10, 2010 -- Moody's Investors Service has assigned a Aa1 rating to St. Louis County's (MO) $2.29 million Taxable Special Obligation Build America Bonds (Transportation Projects), Series 2010M and Taxable Special Obligation Recovery Zone Economic Development Bonds (Transportation Projects), Series 2010N. Concurrently, Moody's has affirmed the Aa1 rating on the county's special obligation bonds, affecting $192.1 million in debt post-sale and the Aaa rating on the county's $49 million in outstanding general obligation unlimited tax obligations. The outlook on the ratings is stable.

RATINGS RATIONALE

The bonds are secured by the county's pledge to annually appropriate for debt service. Together, proceeds from the current offerings will finance road and bridge improvements throughout the county. The one notch distinction from the county's Aaa general obligation unlimited tax rating reflects the risk of non-appropriation and the lack of a pledged asset in the current financing. However, we believe the one-notch distinction also incorporates the essential nature of the projects being financed as well as the fundamental long-term credit characteristics of the county's gilt-edged general obligation rating. The county's long term credit quality reflects the substantial tax base and role as the economic hub for eastern Missouri (G.O. rated Aaa with stable outlook) and the St. Louis region; the long trend of healthy reserves and strong financial management; and low debt position that is expected to remain manageable.

BONDS SECURED BY ANNUAL APPROPRIATION PLEDGE

We believe that while the current offerings do not provide for either a mortgage or leasehold interest in a pledged asset, bondholders are still offered satisfactory security by the county's strong appropriation procedures and proven history of appropriating debt service payments. The bonds are secured by the county's pledge to annually appropriate for debt service from the General Fund, providing the necessary funds to the paying agent at least one business day prior to the debt service due date. Favorably, the county's appropriation process includes inherent strengths including: automatic inclusion of annual debt service in the budget, a five month window between typical council approval of the budget (December 31) and the first debt service payment (June 1 and December 1), and by county charter, if the council does not appropriate a budget there is an automatic appropriation of one twelfth of the prior year's annual appropriation per month.

COUNTY'S SIZABLE AND DIVERSE ECONOMY ANCHORS EASTERN MISSOURI

We expect the county's economy will remain stable over the long term due to a substantial and diverse set of employers as well as management's proactive approach towards economic development and job growth. St. Louis County, which excludes the City of St. Louis (Aa3 with stable outlook), serves as the economic, employment and retail hub for the eastern Missouri and western Illinois region. The area encompasses about 17% of Missouri's population with an estimated 992,000 residents and nearly 27% of all the jobs within the state. Despite a 6.1% decline in the estimated full value in 2009 (a reappraisal year), currently valued at $103.3 billion, the five year trend reflects a moderate 5.0% average annual increase. Officials report the 2010 value reflects a subsequent modest drop of 1.1% in the full value, which is consistent with values reported by municipalities located within the county. Looking ahead to the 2011 tax year (a reappraisal year), we expect the county's full value will return to positive growth. Top employers and taxpayers within the county including Monsanto (senior unsecured rated A2 with stable outlook), Edward Jones, and Express Scripts (senior unsecured rated Baa3 with stable outlook) continue to perform well despite the national economic downturn. Officials indicate Express Scripts recently broke ground on a new facility that will employ 300 people, including 120 pharmacists. Additionally, despite a trend to reduce government defense spending, Boeing (senior unsecured rated A2 with negative outlook) the county's largest employer and third largest taxpayer, appears to be the sole bidder to supply the US Air Force with a new fleet of mid-air refueling tankers. Monsanto together with the Donald Danforth Center for Plant and Life Sciences will facilitate a growing biotech industry and spur economic development over the long term - a sentiment echoed by Moody's Economy.com. Notably, the county's private sector employers are complemented by significant institutional presence from higher education and healthcare providers including Washington University (revenue bonds rated Aaa with stable outlook), the University of Missouri-St. Louis and several large hospitals and clinics. Unemployment figures for the county continue to mirror the state and national rates at 9.5% in August 2010. Resident income levels exceed state norms with a per capita income and median family income equivalent to 138.4% and 134% of the state, respectively.

Despite the county's dominant role in the local economy, officials continue to wrestle with a prolonged trend of population decline, which is estimated to have dropped by 2% from 2000. One measure officials hope will counteract this trend is attracting and creating jobs. On March 4, 2010, the Pinnacle River City Casino opened its doors with 1,300 employees, which is expected to support tourism and retail expansion within the region. Additionally, DHR, an incubator business and subsidiary of World Wide Technologies, is consolidating operations and creating 500 jobs in the county over the next 24 months. The state's department of economic development reports several other initiatives underway that will create jobs within the St. Louis metro area, which will likely stabilize the county's population over the long term.

SOUND FINANCIAL POSITION ENHANCED BY STRONG MANAGEMENT AND SATISFACTORY RESERVES

The county's financial operations have been characterized by a long trend of operating surpluses and maintenance of substantial reserves due to conservative budgeting and strong management practices. The county has recorded four consecutive operating surpluses between FY2005 and FY2008, increasing the General Fund balance from $93.4 million to $120.5 million in FY2008 - a sound 37% of revenues. Favorably, one-time revenue increases including a sizable jump in gross utility receipts (a 5% percent tax on electric, gas, telephone and water utilities) in fiscal 2007 and a settlement in protested property tax receipts in fiscal 2008 each were primarily shifted to fund balance as opposed to financing increases to operations.

In fiscal 2009, due to softening in property and sales taxes, officials originally projected a decline in General Fund equity of $30 million. In order to close the budget gap, several expenditure reductions and containment strategies were implemented including hiring and salary freezes, and limiting discretionary spending. Modifications to expenditures in fiscal 2009 reduced the gap to $17 million at mid-year while audited results show an actual decline of $10 million at year-end. The 2009 total fund balance shows nearly $110 million in reserve, or a still favorable 35% of General Fund revenues. Officials indicate about 50% of the imbalance between revenues and expenditures in fiscal 2009 was due to an 8.4% decrease in sales taxes, the county's second largest General Fund revenue source at 14.3% of FY09 revenues. When constructing the fiscal 2010 budget, officials maintained conservative revenue projections due to the ongoing weakened national economy and its affect on major operating revenues. Sales tax projections were kept flat from fiscal 2009 collections and property taxes were projected lower due to the 5.5% decline in the county's assessed valuation. Likewise, officials adjusted expenditures lower with ongoing salary and hiring freezes and by cutting departmental budgets by 2% from the prior year. Officials report sales tax revenues are down from budget by between 0.7% and 2.0% and expect year-end estimates will be 2.5% below budget (with about $44.1 million collected for the General Fund at the close of 2010). Favorably, officials project fiscal 2010 revenues are 3% above budget due to collection of the new casino revenues, expected to be $8 million at year-end. Officials expect the casino revenue will generate approximately $10 million beginning in fiscal 2011 to support General Fund operations. Despite somewhat higher revenue projections and as expenditures are tracking below budget, officials anticipate an additional $15 million draw on the General Fund reserve in fiscal 2010 (down from an original projection of $34 million). With the 2010 year-end reserve estimated at $95 million, we believe the county's financial cushion will remain adequate at 30% of FY09 revenues.

The adopted 2011 budget remains conservative, despite some recent uptick in major operating revenues. The budget includes flat sales and property tax revenue projections based on fiscal 2010 year-end estimates. In total, fiscal 2011 revenues are budgeted 0.8% below 2010 year-end revenue projections. Expenditures are budgeted about $10 million below 2010 due to the reduction of 32 personnel positions saving $2.6 million and lower capital expenditures.

LOW DEBT PROFILE EXPECTED TO REMAIN LOW

Inclusive of the current transactions the county's debt position is manageable at 1.6% (0.4% direct). Additionally, the rate of repayment has slowed to about 47.5% of principal retired in ten years (due to the ongoing use of Build America Bonds that are structured to take advantage of the U.S. Treasury subsidy by stretching out principal repayment). Going forward, officials do not anticipate any additional near term borrowing. We believe with modest future tax base growth and the lack of additional borrowing in the near term, the county's debt position will remain consistent with similarly rated Aaa counties. All of the county's debt is fixed rate and the county is not party to any swap agreements.

WHAT COULD CHANGE THE RATING - DOWN

-Deterioration in the county's GO rating

-Failure to appropriate for debt service

-Ongoing structural imbalance reducing the General Fund balance below similarly rated entities

KEY STATISTICS

Current population estimate: 992,408 (2.4% decline from 2000 Census)

2009 estimated full valuation: $103.3 billion

Estimated full value per capita: $103,319

Per capita income (as a % of state median): 138.4%

Median family income (as a % of state median): 134%

August 2010 unemployment rate: 9.5% (9.4% MO; 9.5% US)

FY09 General Fund balance: $110 million (35% of General Fund revenues)

Debt burden: 1.6% (0.4% direct)

Principal amortization (10 years): 47.5%

Post-sale total long-term debt outstanding: $379.1 million ($49 million of GO debt)

Post-sale short-term debt outstanding: $28 million

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.

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

Nora Wittstruck
Analyst
Public Finance Group
Moody's Investors Service

Megan Roudebush
Backup Analyst
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 WITH STABLE OUTLOOK TO ST. LOUIS COUNTY (MO) $2.29 MILLION TAXABLE SPECIAL OBLIGATION BABS (TRANSPORTATION PROJECTS), SERIES 2010M AND $3.71 MILLION TAXABLE SPECIAL OBLIGATION RZEDS (TRANSPORTATION PROJECTIONS, SERIES 2010N
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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