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MOODY'S ASSIGNS Aa2 RATING TO LUCAS COUNTY'S (OH) $4.4 MILLION GOLT COURT OF APPEALS BUILDING REFUNDING BONDS, SERIES 2011 AND MIG 1 RATINGS TO $15.4 MILLION VARIOUS PURPOSE IMPROVEMENT NOTES AND $9.8 MILLION TAXABLE ARENA IMPROVEMENT NOTES

27 Jun 2011

AFFIRMATION OF LONG TERM Aa2 RATING APPLIES TO $104.1 MILLION OF OUTSTANDING GO DEBT

County
OH

Moody's Rating

ISSUE

RATING

Court of Appeals Building Refunding Bonds, Series 2011

Aa2

  Sale Amount

$4,440,000

  Expected Sale Date

07/07/11

  Rating Description

General Obligation Limited Tax

 

Various Purpose Improvement Bond Anticipation Notes, Series 2011

MIG 1

  Sale Amount

$15,400,000

  Expected Sale Date

07/07/11

  Rating Description

Bond Anticipation Notes

 

Taxable Arena Improvement Bond Anticipation Notes, Series 2011

MIG 1

  Sale Amount

$9,800,000

  Expected Sale Date

07/07/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Jun 27, 2011 -- Moody's Investors Service has assigned a Aa2 rating to Lucas County's (OH) $4.44 million General Obligation Limited Tax Court of Appeals Building Refunding Bonds, Series 2011 and a MIG 1 rating to Lucas County's $15.4 million General Obligation Various Purpose Improvement Notes (Limited Tax), Series 2011 and $9.8 million General Obligation Taxable Arena Improvement Notes (Limited Tax), Series 2011. Concurrently, Moody's has affirmed the Aa2 rating on $104.1 million of outstanding long-term debt.

SUMMARY RATINGS RATIONALE

The current offerings are secured by the county's General Obligation Limited Tax pledge, subject to the State of Ohio's ten- mill limitation. The bonds will refund select maturities of the county's outstanding Various Purpose Improvement Bonds, Series 2003 for an estimated net present value savings of 6%. Proceeds of the Various Purpose Improvement Notes will retire the Series 2010 notes, which mature on July 21, 2011. County management expects to pay down approximately $500,000 on the maturing Various Purpose Improvement Notes, which were originally issued to finance the costs of constructing, equipping, furnishing, and improving the county's arena facility. In addition, approximately $1.5 million of new money is provided in the issuance to finance various infrastructure and facility improvements. Proceeds of the Taxable Arena Improvement Notes will retire the Series 2010 notes, which mature on July 21, 2011. County management expects to pay down approximately $4 million on the maturing Notes. Assignment and affirmation of the Aa2 rating incorporates the county's adequate financial position, despite recent reductions in reserves; large tax base that encompasses the City of Toledo (GOLT rated A2); and manageable debt profile with no immediate borrowing plans. The MIG 1 rating incorporates the county's demonstrated history of market access and the credit characteristics inherent in the county's long term Aa2 rating.

STRENGTHS:

-Sizable tax base and economic hub in the northwest Ohio

-Expenditure reductions implemented to right-size costs with available resources

CHALLENGES:

-Large exposure to economically sensitive sales tax

-Reduced General Fund reserves in recent years

DETAILED CREDIT DISCUSSION

EXPECTED MARKET ACCESS SUPPORTS MIG 1 RATING

The county's demonstrated ability to access the market includes six bond and note issuances in the last two years through negotiated sales. The Series 2011 notes are expected to be sold on July 7, 2011 and mature on July 19, 2012. The county expects the new-money portion of the note issuance will be retired prior to maturity with proceeds from the sale of long-term bonds, or rolled with a portion of debt service being paid off, dependant on market conditions. The notes are backed by the county's general obligation pledge, subject to the ten-mill limitation. Management is expected to make adequate provisions to address potential market disruptions at the time of the takeout financing, by planning the take out debt in advance of the final maturity, and considering alternate back up plans if necessary. The current offering will be sold on a negotiated basis with representatives from Stifel Nicolaus, the underwriter on the note sale, anticipating favorable market access given the underlying credit quality of the city.

ADEQUATE FINANCIAL OPERATIONS DESPITE RECENT ECONOMIC CHALLENGES

The county's financial operations will likely remain adequate due to prudent fiscal management and the continued stabilization of economically sensitive revenues. The county's finances are particularly sensitive to economic trends, with essentially half of General Fund revenues derived from sales taxes. Recognizing the likely continued impact of the regional and national recession, county officials budgeted for a 5% decline in sales taxes for fiscal 2009. In the history of the county's sales tax collections, the greatest year over year decline in sales tax collections was 4%. Despite management's relatively conservative projection, the impacts of the recession were even greater than expected and fiscal 2009 year-end results reflected a substantial 10.3% ($7.4 million) decline in sales tax receipts. Though officials initially anticipated a $6 million budgetary shortfall in fiscal 2009, audited results reflected a $13.9 million General Fund shortfall at the close of fiscal 2009. General Fund balance decreased to $29 million, or 23.1% of General Fund revenues from 29% in FY2008.

Leading up to fiscal 2010, the county was faced with an estimated $9 million budget shortfall that was closed in part with department cuts and layoffs generating an estimated $4 million in savings. Audited figures show the county concluding fiscal 2010 with a $676,000 operating deficit. Similar to prior years, the draw was revenue-driven; total General Fund revenues experienced a negative $3.9 million budget-to-actual variance. While management budgeted for an 8.4% ($5.3 million) increase in sales tax receipts above fiscal 2009 collections, actual figures show the economically sensitive revenues coming in below budget by $2.1 million. Service revenues came in below budget by a sizable $3.1 million as a result of decreased court fees; however, intergovernmental revenues were $1.4 million over budget On the expenditure side, cost containment initiatives led to a favorable $1.6 million budget-to-actual variance. The operating deficit brought General Fund reserves down to $28.4 million, or a still adequate 22.1% of revenues.

Management believes conservative revenue assumptions and expenditure reductions will yield balanced operations or a modest operating surplus in FY2011. While sales tax revenues were budgeted with a slight increase over fiscal 2010 receipts, year-to-date projections show the revenue stream up $1.2 million over budget. Additionally, lodging tax revenues are exceeding budget by approximately 5.4%. Additional revenue raising flexibility includes the ability to privatize certain emergency management services and increase the sales tax rate, though neither of these revenue enhancements are being considered at this time. The county's willingness to implement expenditure reductions and revenue enhancements sufficient to maintain structural balance and restore operating liquidity will remain an important factor in future credit reviews, particularly given the dependence on economically sensitive sales tax revenues and the recent declines in fund balance.

LARGE TAX BASE THAT ENCOMPASSES THE CITY OF TOLEDO; REGIONAL EDUCATION, MEDICAL, AND TRADE HUB

Despite economic challenges in the near and medium-term, Lucas County will likely maintain a level of economic stability over the long-term due to its role as regional education, medical, and trade center in northwest Ohio (State of Ohio GO debt rated Aa1/negative outlook) as the region continues to diversify and reduce its dependence on traditional manufacturing industries. The county includes the City of Toledo, which is the county seat. Full valuation, which stands at a relatively sizeable $22.9 billion, averaged an annual net decline of 2% over the last five years, including a substantial 9.6% decline in the 2010 triennial adjustment. This decline reflects state reductions in the valuation of utility personal property and the phase out of tangible personal property values, as well as substantial declines in real estate valuation due to pressures in the residential housing market.

Though the county has made progress in diversifying its employment base, it has remained dependent on a considerable manufacturing presence, particularly Chrysler's Jeep Corporation. And General Motors (long term rated Ba2/stable outlook). Prior to entering bankruptcy in April 2009, Chrysler employed 1,700 employees at the Toledo North Plant and 1,300 at the Toledo Machine Plant. After emerging from bankruptcy, employment at these facilities stands at 1,500 and 770, respectively. Chrysler's local operations currently manufacture 180,000 cars a year; however, the county notes that the company's management has applied for permits which enable production to increase to 350,000 cars per year. Pending approval, the increased production capacity is expected to create an additional 1,200 jobs. GM entered bankruptcy in June 2009, laying off over 1,000 employees at the Toledo Powertrain facility; however, 900 were recalled to work beginning July 2009 and estimated employment at this facility now stands at slightly more than 1,400. Management notes that GM is making a $260 million investment in local operations. Operations for the automakers appear to have stabilized for the near-term although the long-term prognosis is still unclear, particularly noting that current employment levels remain below recent highs (2007 data indicate that together Chrysler and GM employed nearly 12,000 in the Toledo MSA).

Despite this continued exposure to the automotive companies, Lucas County continues to diversify its economic base. This is most notably demonstrated by the fact that the top ten tax payers and employers in the county do not include any manufacturing companies. The top five employers include health care, higher education, and local government. ProMedica Health Systems (revenue debt rated Aa3/stable) and Mercy Health Partners (Catholic Healthcare Partners, A1/positive), are the county's largest employers, with 9,945 and 6,625 employees, respectively. The county, in conjunction with the City of Toledo, continues to engage in various economic development efforts, including substantial recent investment in downtown redevelopment. Officials note an uptick in economic activity in Toledo resulting from the recent completion of the arena project. Favorably, Toledo is one of four Ohio cities authorized to construct a casino per a voter referendum approved in November 2009. Construction on the $250 million casino, which has created an estimated 2,500 jobs during construction, is expected to conclude in 2012. The county's unemployment rate (9.3% in April 2011) has been and continues to remain above the state and national averages. Socioeconomic indicators from 2000 census data approximate state and national norms, yielding a moderate estimated full valuation per capita of $51,765. Population decline continues, albeit at a modest pace, with census estimates from 2007 indicating a decline to 441,910 residents (or 2.9%) between 2000 and 2007.

MANAGEABLE DEBT PROFILE WITH NO IMMEDIATE BORROWING PLANS

The county's debt burden is above-average, though manageable, at 3.2% of full valuation, reflecting considerable school district and municipal overlapping obligations. The direct debt burden is modest at 0.6% of full valuation. Principal amortization is satisfactory with 55.6% of direct obligations retired in ten years. The county's debt portfolio includes $25.2 million in outstanding bond anticipation notes. We believe this poses a manageable degree of market access risk that is comparable to other Ohio counties. The county has no additional borrowing plans in the foreseeable future. All of the county's long-term debt is fixed rate. Given an already modest debt burden and no outlined near-term borrowing needs, we expect the county's debt position will likely remain favorable.

KEY STATISTICS

2011 Full valuation: $22.9 billion

Average annual decrease in full value (2006-2011): 2%

Full value per capita (estimate): $51,765

Per capita income (as a % of state): 97.7%

Median family income (as a % of state): 96.3%April 2011 unemployment rate: 9.3% (State: 8.4%; US: 8.7%)

Fiscal 2010 General Fund (GAAP) balance: $28.4 million (22.1% of revenues)

Overall debt burden (direct): 3.2% (0.6%)

Payout of principal (10 years): 55.6%

GOLT bond anticipation notes outstanding: $25.2 million

GOLT bonds outstanding: $104.1 million, including the current offerings

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

Mark G. Lazarus
Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
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 Aa2 RATING TO LUCAS COUNTY'S (OH) $4.4 MILLION GOLT COURT OF APPEALS BUILDING REFUNDING BONDS, SERIES 2011 AND MIG 1 RATINGS TO $15.4 MILLION VARIOUS PURPOSE IMPROVEMENT NOTES AND $9.8 MILLION TAXABLE ARENA IMPROVEMENT NOTES
No Related Data.
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