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New Issue:

MOODY'S ASSIGNS Aa1 TO MONTGOMERY COUNTY'S (AL) $13.8 MILLION GENERAL OBLIGATION WARRANTS, SERIES 2010

12 Oct 2010

AFFIRMATION AFFECTS $66.5 MILLION IN GOLT DEBT

County
AL

Moody's Rating

ISSUE

RATING

General Obligation Refunding Warrants Series 2010

Aa1

  Sale Amount

$13,800,000

  Expected Sale Date

10/15/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 12, 2010 -- Moody's Investors Service has assigned a Aa1 rating to the County of Montgomery's (AL) $13.8 million General Obligation Refunding Warrants, Series 2010.

RATINGS RATIONALE

Concurrently, Moody's has also affirmed the county's Aa1 on approximately $66.5 million in outstanding parity debt. The warrants are secured by the county's full faith and credit, general obligation pledge. Proceeds will also refund the county's Series 2002 Warrants for an expected net present value savings of $554,000 or 4.61% of refunded principal. The Aa1 rating reflects the county's large economic base; its home of the state capital and diverse job market. The rating also takes into consideration the county's satisfactory financial position and manageable debt burden.

TAX BASE EXPECTED TO REMAIN STABLE OVER THE MEDIUM TERM

Moody's believes the county's large, $19.1 billion tax base will continue to gain stability from its role as home to the City of Montgomery (GO rated Aa1), the state capital of Alabama (GO rated Aa1/stable). The local economy has historically benefited from the city's employment base, along with the presence of the Maxwell-Gunter Air Force Base. The county also benefits from the Hyundai Motor Manufacturing plant, located in the county. The plant currently employs approximately 2,800 people with average wages nearing $50,000. In addition to the Hyundai plant, various parts suppliers have located operations in the county, investing nearly $700 million in the area and employing an estimated 3,500 workers. The Hyundai facility has had a positive economic impact on the entire Montgomery MSA, including employment opportunities. The economic base is well-diversified, with the top 10 taxpayers representing only 8% of total assessed value. While unemployment levels have increased over the last four years, this is mainly a function of the national economy and is still lower than statewide levels. Unemployment in the county is 9.2% (August 2010) versus 9.3% for the state and 9.5% for the nation. Assessed value growth remains positive, averaging 2.3% over the last five years (2006 - 2010), largely a result of development within the City of Montgomery. The Hyundai plant received a property tax abatement from the county, so its estimated $72.3 million value is not fully included in the estimated valuation, nor are the numerous state and federal facilities located within the county. Moody's believes that the continued new economic development could impact wealth and unemployment levels over the near term. The county's per capita income is $19,358, or 106.4% of the state, and median family income is $44,669, or 107.2% of the state. Full value per capita is greater than the state median at $84,798.

FINANCIAL POSITION EXPECTED TO STRENGTHEN; OPERATING SURPLUS PROJECTED IN FISCAL 2010

Moody's expects the county's financial position will stabilize over the near term given the recent and expected declines in General Fund balance, the decline in appropriated General Fund balance, and the currently healthy reserve levels. While the county's overall financial position has remained healthy, fiscal years 2007, 2008 and 2009 ended with sizeable draw-downs in General Fund balance, totaling $41 million, largely the result of the county's placement of bond proceeds into the General Fund and not a Capital Projects Fund. The county's most recent audited year, fiscal 2008, ended with an operating deficit of $3 million (originally budgeted an appropriation of $4.5 million), decreasing overall fund balance to $65.4 million, or a satisfactory 16.7% of annual revenues. Unreserved General Fund balance decreases to $19 million (18.7% of General Fund revenues), largely due to $25.8 million in school project designations. Favorably, the county had $5.4 million in available reserves in the Public Buildings, Roads and Bridges Fund, which increased total available reserves to 31% of General Fund revenues. In fiscal 2009 (unaudited), the county realized a $5.2 million operating deficit, while the General Fund balance declined by $26.4 million, as the county spent bond proceeds which had been previously reserved in its General Fund. Management attributes the operating deficit to significant declines in the county's sales tax revenues, which came in under budget by approximately $3.6 million (8.9% less than budgeted), and increased jail costs. General Fund balance ended fiscal 2009 at $39 million (a strong 54.5% of General Fund revenues), while unreserved General Fund balance was $13.4 million (or 18.7% of General Fund revenues).

Management anticipates finishing fiscal year 2010 (September 30th) with another operating deficit of approximately $5 million, which would decrease total General Fund reserves to $34 million (or approximately 47% of annual revenues). The fiscal 2010 budget included $4.3 million in appropriated fund balance, and $38.5 million in sales tax revenues. Expenditure reductions have also occurred throughout the year. While the county does not have a formal fund balance policy, management has a goal of holding reserves equal to one-year's debt service (currently $11.2 million). The fiscal 2011 budget features a decline in appropriated fund balance to $461,000. Management reports that in response to the stagnant in sales tax revenues, it increased its lodging tax from $1 per day to $1.5 per day. This increase is expected to generate an additional $550,000 per year. Through August 31st, sales tax revenues totaled $34.3 million, 89% of budget. The county's ability to maintain structural balance and continue to increase reserve levels in-line with others within the Aa1 rating category will be an important rating factor going forward.

MANAGEABLE DEBT POSITION

Moody's expects the county's debt burden will remain manageable given ongoing tax base expansion and the lack of major future borrowing plans. The county's direct debt burden of 0.7% of full valuation is below-average and increases to 0.8% when the debt of overlapping municipalities is taken into account. Amortization of principal is below-average with only 30.2% of principal repaid within ten years, although still in-line with the useful life of the assets. The county plans on issuing a modest amount of debt in the medium term for building improvement projects. The county does not have any variable rate debt and is not party to any swap agreements.

WHAT COULD CHANGE THE RATING (UP):

- Growth in taxable assessed valuation over the medium term

- Accelerated payout of debt burden

WHAT COULD CHANGE THE RATING (DOWN):

- Material multi-year declines in fund balances and liquidity

- Significant growth in the district's direct debt burden

KEY STATISTICS:

2007 Population: 225,791

2010 Full valuation: $19.1 billion

2010 Full value per capita: $84,798

Direct debt burden: 0.7%

Overall debt burden: 0.8%

Payout of principal (10 years): 30.2%

Fiscal 2009 General Fund balance: $39 million (54.5% of General Fund revenues)

Fiscal 2009 Undesignated General Fund balance: $13.4 million (18.7% of General Fund revenues)

Per capita income as a % of State: 106.4%

Median family income as a % of State: 107.2%

Post-sale parity debt outstanding: $66.5 million

The principal methodology used in rating Montgomery (County of) AL 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, public information, confidential and proprietary Moody's Investors Service's 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

Seth Klempner
Analyst
Public Finance Group
Moody's Investors Service

Christopher Coviello
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
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USA

MOODY'S ASSIGNS Aa1 TO MONTGOMERY COUNTY'S (AL) $13.8 MILLION GENERAL OBLIGATION WARRANTS, SERIES 2010
No Related Data.
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