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MOODY'S ASSIGNS Aa1 UNDERLYING RATING TO THE CITY OF AMARILLO'S (TX) $5.99 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011

29 Jul 2011

MOODY'S AFFIRMS Aa1 RATING OF $47.39 MILLION IN OUTSTANDING PARITY DEBT PREVIOUSLY ISSUED BY THE DISTRICT; THE RATING ALSO TAKES INTO CONSIDERATION ROGHLY $104.2 MILLION IN OUTSTANDING PARITY DEBT NOT RATED BY MOODY'S

Municipality
TX

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds, Series 2011

Aa1

  Sale Amount

$5,995,000

  Expected Sale Date

08/10/11

  Rating Description

General Obligation Refunding Bonds

 

Opinion

NEW YORK, Jul 29, 2011 -- Moody's Investors Service has assigned a Aa1 underlying rating to the City of Amarillo's (TX) $5.99 million General Obligation Refunding Bonds, Series 2011. Concurrently, we have affirmed the Aa1 underlying rating on $47.39 million in outstanding parity debt. The rating also takes into account an additional $104.2 million of outstanding parity debt not rated by Moody's. Proceeds from the sale will be used to refund certain maturities of the district's outstanding water and sewer revenue debt for a net present value savings with no extension of the final maturity.

SUMMARY RATING RATIONALE

The bonds are payable from a continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the city. The rating assignment reflects the city's stable taxable value that will experience modest growth in the near term as the city continues to act as a regional economic center for the surrounding area, strong financial management with maintained reserve levels, and a modest debt burden net of debt that is supported by water and sewer system revenues.

SIZEABLE AND RELATIVELY DIVERSE TAX BASE EXPECTED TO REMAIN STABLE IN THE NEAR TERM

Despite a slowing of previously healthy taxable value growth, we believe the city's taxable value will remain stable in the near term. Located in the panhandle of Texas, the City of Amarillo continues to act as a regional hub for the area. Over the last five years the city's tax base has increased an average of 5.1% annually reaching $10.0 billion in fiscal 2011. Officials report that economic development in the city continues including establishment of multiple wind turbine component companies due to start operations in fiscal 2011, expansion of Bell Helicopter operations, as well as headquarters expansion of Golden Spread Electric Cooperative. Preliminary numbers for fiscal 2012 indicate modest growth in the city's taxable value of roughly 2.0% over fiscal 2011 valuations. Moody's Economy reported in March 2011 that Amarillo's forecast for the year was revised higher because of a more robust recovery in energy that generates important spillover. The top ten taxpayers are relatively diverse comprising only 5.4% of the total tax base and include a hospital, utility, and retailers. We note that May 2011 unemployment rate of 5.3% for the city was well below the state and national averages of 7.9% and 8.7% for the same time period.

STRONG FINANCIAL MANAGEMENT

Moody's expects the city's financial performance to remain stable in the near term given historically stable financial operations and management's commitment to maintain healthy reserve levels. The General Fund balance at FYE 2010 (September 30) was $41.6 million, or a healthy 30.7% of revenues. The operating surplus experienced in the General Fund in fiscal 2010 was the result of contained expenditures and the implementation of a 3% reduction in budgeted expenditures from all departments and no increases in salaries. Fiscal 2010 operating fund revenues were largely derived from sales tax collections (34.9%), and property taxes (22.5%), and various charges for services (21.5%). The city is a participant in the Texas Municipal Retirement System. In fiscal year 2010, the annual pension cost was $15.28 million or 11.3% of General Fund revenues. The city contributed $11.6 million toward its pension obligation which resulted in a net pension obligation at fiscal year-end 2010 of $6.6 million. The city also offers Other Post Employment Benefits (OPEB) to its employees. The city currently funds this obligation on a pay as you go basis. At fiscal year-end 2010, the city recorded a net OPEB obligation of $43.39 million. The city anticipates reviewing the contribution status and drug benefit in an effort to better manage the liability. City officials report strong year to date performance in the General Fund with regards to the fiscal 2011 budget, particularly noting sales tax collections which are trending roughly 8% or $3.0 million above budget. Historically the city has maintained a target of 90 days of expenditures held in reserves and transfer anything over the target to capital projects. We believe this management practice will continue in the near term. Maintenance of healthy reserves is a strength of the City's financial position and a particular credit positive which is incorporated into the Aa1 rating.

MODEST DEBT BURDEN WITH SUPPORT FROM WATER AND SEWER REVENUES

We expect the district's debt burden will remain manageable in the near term. The city has $157.5 million in post-sale general obligation debt. It is anticipated that roughly $110.3 million of the city's outstanding general obligation debt will be paid from net revenues of the city's Water and Sewer System (Prior lien revenue bonds rated Aa1). The direct debt burden of the city is below average at 0.5%. The city's overlapping debt burden of 2.9% is on par with similarly rated cities across the US and is due mainly to overlapping debt of Amarillo Independent School District (General Obligation rated Aa2) and Canyon Independent School District (Not rated). The city's direct debt burden increases to a still manageable 1.57% when including debt which is supported by the Water and Sewer System. Debt burdens are calculated using fiscal 2011 taxable values. Payout is slightly below average with 56.5% of principal retired in ten years. City officials have listed various projects in the city's five year capital improvement plan which includes updates and improvements every year. The city does anticipate future debt issuance in the near term for a downtown parking facility and multi-purpose venue to include a baseball stadium, yet specific issuance amounts have yet to be determined. The city does not have any variable rate debt and is not party to any swap agreements.

WHAT COULD MAKE THE RATING GO UP:

* Substantial tax base growth

* Maintaining healthy General Fund reserves

* Improved socioeconomic profile

WHAT COULD MAKE THE RATING GO DOWN:

* Tax base contraction

* Deterioration of General Fund reserves

KEY STATISTICS:

2010 Estimated Population: 196,472

FY 2011 Full Value: $10.0 billion

Full Value per Capita: $51,181

Direct Debt Burden: 0.5%

Overall Debt Burden: 2.9%

Payout of Principal (10 years): 56.5%

FYE 2010 General Fund Balance: $41.6 million (30.7% of General Fund revenues)

Post-sale Parity Debt Outstanding: $157.5 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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, Inc.
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New York, NY 10007
USA

MOODY'S ASSIGNS Aa1 UNDERLYING RATING TO THE CITY OF AMARILLO'S (TX) $5.99 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011
No Related Data.
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