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MOODY'S ASSIGNS Aa2 RATING TO FAIRFAX COUNTY ECONOMIC DEVELOPMENT AUTHORITY'S (VA) $220 MILLION TRANSPORTATION DISTRICT IMPROVEMENT REVENUE BONDS, SERIES 2011

05 Apr 2011

Fairfax (County of) VA
County
VA

Moody's Rating

ISSUE

RATING

Transportation District Improvement Revenue Bonds (Silver Line Phase I Project) Series 2011

Aa2

  Sale Amount

$211,650,000

  Expected Sale Date

05/15/11

  Rating Description

Special Assessment Bonds

 

Opinion

NEW YORK, Apr 5, 2011 -- Moody's Investors Service has assigned a Aa2 rating to Fairfax County Economic Development Authority's (VA) $220 million Transportation District Improvement Revenue Bonds (Silver Line Phase I Project), Series 2011.

SUMMARY RATINGS RATIONALE

The senior lien, fixed-rate bonds are being issued to finance a portion of the county's share of the Dulles Metrorail Silver Line extension and are secured by limited property tax revenues assessed within the Phase I Dulles Rail Transportation Improvement District. The Aa2 rating reflects the district's large, primarily commercial tax base within Fairfax County (G.O. rated Aaa/stable outlook), satisfactory projected debt service coverage, adequate legal provisions including a limited property tax rate, cash-funded debt service reserve and 1.2 times additional bonds test and additional revenue stabilization reserves. the rating also reflects recent declines in the district's assessed valuation and a relatively high concentration of major district taxpayers.

STRENGTHS:

-Large, economically diverse and favorably located tax base

-Ample reserves

-Reasonable capacity under property tax limit

-Establishment of district with strong voter support

-District collections administered by strong county management

CHALLENGES:

-Recent assessed valuation declines and elevated office vacancy rates

-Concentration among top taxpayers (top 20 property owners 38% of assessed valuation)

DISTRICT ESTABLISHED TO FINANCE COUNTY'S SHARE OF DULLES SILVER LINE PHASE I

Backed by a strong show of taxpayer support to expand the Washington area's Metrorail system, the Phase I Dulles Rail Transportation Improvement District was established by the Fairfax County Board of Supervisors in 2004 to generate property tax revenue from commercial and industrial property adjacent to the planned rail extension. The district is governed by a five-member commission, including four members appointed by Fairfax County and one by the Commonwealth of Virginia's Transportation Board. The $10 billion district represents roughly 4.8% of Fairfax County's $208 billion assessed valuation but incorporates 25% of the county's commercial property. Roughly 37 million square feet of retail and office space are covered by the district, including the growing Tyson's Corner development and portions of the Wiehle Avenue corridor. The county is responsible for 16.1% of the entire rail extension project, which is currently projected at up to $6.2 billion and is scheduled to begin service to Wiehle Avenue in 2013 and Dulles Airport in 2017. Construction of the project is managed by the Metropolitan Washington Airports Authority (MWAA, first senior revenue bonds rated Aa3/negative outlook); the Washington Metropolitan Area Transit Authority (WMATA, gross revenue transit bonds rated A1/stable outlook) will operate the system. An interlocal project agreement establishes Fairfax County's responsibility for 16.1% of projects costs, along with MWAA (79.1% of projects costs) and Loudoun County (G.O. rated Aaa, 4.8% of project costs).

The county, opon request of the Phase I District, is authorized to levy a property tax up to $0.40 (per $100 in valuation) and is responsible for a maximum of $400 million of project costs. The countybegan collecting revenues in fiscal 2005 and has generated more than $160 million to date. Annual revenues for fiscal 2006-2010 averaged $26 million, with the tax rate set at $0.22 (per $100) tax rate. However, reflecting minimal new development and regional market value declines as of January 1, 2010, assessed values dropped sharply by 19.6% in fiscal 2011. Valuations have begun to improve and a modest assessed valuation increase of 1.7% is projected for fiscal 2012, reflecting January 1, 2011 values.

In addition to the current $220 million issue, since fiscal 2005 the district has transferred $94 million to MWAA from its property tax revenue collections. The additional $86 million is expected to be funded from surplus tax revenues in fiscal 2012 and an additional bond issuance of roughly $70 million in fiscal 2012. Phase I construction is well underway with 95% of the project fully designed, 99% of utility relocation completed and 29% of construction finished. The county plans to establish an adjacent district to fund a portion of the project's Phase II improvements and is expected to transfer additional funds from various reserves to meet the county's entire 16.1% obligation. The district will be dissolved when its $400 million obligation has been satisfied and associated debt is retired. Notably, the legal status of the district and its ability to assess property taxes was validated by the commonwealth's Supreme Court in 2010 after an unsuccessful challenge.

PROPERTY TAX REVENUE COLLECTIONS STRONG

District revenues are assessed and collected by Fairfax County along with the county's general property tax, which assures the district a reliable source of revenue. The county's property tax collection rates regularly exceed 99% on a current-year basis. Delinquencies are pro-rated among the various local and county-wide taxes assessed on property owners; the county may ultimately file a property tax lien on property with delinquent payments.

The current plan of finance maintains the property tax rate at $0.22 (per $100 in valuation), well under the $0.40 maximum and also comfortably below the additional $0.29 initial plan limit, as required by the trust agreement. Once the bonds have been issued, the district may request that the county levy up to the $0.40 maximum to generate revenue sufficient to pay annual debt service. Assessed value growth is conservatively projected at 1.5% annually and the district does not expect to raise the tax rate in the near term.

SATISFACTORY LEGAL PROVISIONS UNDER TRUST AGREEMENT

Adequate legal provisions in the Trust Agreement include a requirement to set the annual property tax at a rate sufficient to cover senior debt service by 1.2 times. Also included is a 1.2 times additional bonds test for senior lien debt and 1 times additional bonds debt for total debt service; these conditions must be met for 12 consecutive months of the prior 24-month period and coverage must be maintained for five bond years following issuance. A tax rate decrease may not be enacted unless revenues have exceeded debt service requirements for the two prior fiscal years. Fairfax EDA is required to take steps within 90 days to rectify non-compliance with the rate covenant. Additional security is provided by a cash-funded debt service reserve fund, currently sized at maximum annual debt service (MADS). The debt service reserve will be funded through a transfer from surplus district revenues and is legally mandated to meet the conventional debt service reserve requirement of the least of MADS, 125% of average annual debt service or 10% of original principal. Although the county is required to annually appropriate special assessment revenues, Fairfax traditionally makes one appropriation for all county debt service, which greatly lessens risk of non-appropriation.

ADEQUATE COVERAGE PROJECTED DESPITE RECENT REVENUE DECLINES

Although district revenues dropped 21% in fiscal 2010, mirroring county-wide property valuation weakness, revenues are expected to comfortably exceed debt service through the medium term. Fiscal 2012 property tax revenues are projected to provide adequate senior lien debt service coverage of 1.57 times in fiscal 2012. Maintaining the $0.22 tax rate and following the fiscal 2012 issuance of $70 million in subordinate debt, senior lien coverage is expected to remain above 1.5 times while total debt service coverage will hover just above 1 time. Although the district currently enjoys a comfortable buffer of taxing margin under the $0.40 limit, a one-year AV decline of approximately 15% would lower debt service coverage to 1 times without an increase in the tax rate. However, assuming the maximum $0.40 tax rate, a one-year AV drop of 60% would be necessary to reduce coverage to 1 time.

In addition to the trust-required debt service reserve fund, the district has accumulated additional cash reserves from surplus tax revenues. Reserves currently total $65.5 million, and include a $16 million revenue stabilization fund in addition to the legal debt service reserve fund. Phase I district cash reserves are invested according to the county's conservative general investment policy. District revenues may only spent on improvements within the district, and it is likely that future accumulated excess revenues will be used to cash-fund a portion of the remaining $400 million district obligation, or to defease or retire outstanding debt.

WHAT COULD MOVE THE RATING UP

-District tax base growth

-Improved debt service coverage

WHAT COULD MOVE THE RATING DOWN

-Declines in district tax base valuation

-Lower debt service coverage

-Depletion of reserves

KEY STATISTICS:

PHASE I DISTRICT

District assessed valuation: $10.2 billion

Average increase, assessed valuation (2005-2011) 6.8%

District debt burden: 2.9% of assessed valuation

District direct debt outstanding: $290 million

FY10 District property tax revenue: $28 million

FY12 Projected debt service coverage (MADS): 1.57x

FAIRFAX COUNTY

2010 Estimated population: 1,074,227 (+10.8% since 2000)

2010 Full valuation: $208 billion

Full value per capita: $193,624

Fiscal 2010 General Fund balance: $349 million (10.3% of General Fund revenues)

Fiscal 2010 Unreserved General Fund balance: $312 million (9.2% of General Fund revenues)

1999 Per Capita Income: $36,888: 154% of VA, 171% of US

1999 Median Family Income: $92,146 170% of VA, 184% of US

Unemployment (December, 2010): 4.4% (6.4% VA, 9.1% US)

Debt burden: 1.4% of full valuation

Payout of general obligation principal (10 years): 68.9%

Post-Sale G.O. debt outstanding: $2.19 billion

Post-Sale total long-term outstanding: $3.4 billion

The rating was assigned by evaluating factors believed to be relevant to the credit profile of the issuer such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the issuer's management and governance structure related to payment. These attributes were compared against other issuers both within and outside of the issuer's core

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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

Susan Kendall
Analyst
Public Finance Group
Moody's Investors Service

Jennifer Rinaca
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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MOODY'S ASSIGNS Aa2 RATING TO FAIRFAX COUNTY ECONOMIC DEVELOPMENT AUTHORITY'S (VA) $220 MILLION TRANSPORTATION DISTRICT IMPROVEMENT REVENUE BONDS, SERIES 2011
No Related Data.
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