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MOODY'S ASSIGNS Aa2 RATING TO SYCAMORE TOWNSHIP'S (OH) $1.66 MILLION ROAD IMPROVEMENT LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010

01 Dec 2010

Aa2 RATING APPLIES TO $21.5 MILLION OF GOLT DEBT, INCLUDING CURRENT OFFERING

Municipality
OH

Moody's Rating

ISSUE

RATING

Road Improvement Limited Tax General Obligation Bonds, Series 2010

Aa2

  Sale Amount

$1,600,000

  Expected Sale Date

12/08/10

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Dec 1, 2010 -- Moody's Investors Service has assigned a Aa2 rating to Sycamore Township's (OH) $1.66 million Road Improvement Limited Tax General Obligation Bonds, Series 2010. Concurrently, Moody's has affirmed the Aa2 rating on the township's approximately $21.5 million of outstanding general obligation limited tax debt, including the current issue.

RATINGS RATIONALE

The bonds are secured by a limited tax general obligation pledge, subject to Ohio's statutory 10 mill limitation. Proceeds from the bonds will finance the construction of a road to a new FBI headquarters site located in the township. The assignment of the Aa2 rating reflects the township's strong financial operations supported by substantial alternate liquidity, a sizeable tax base in the Cincinnati (Aa1/stable) metropolitan area, and manageable debt profile with no future borrowing plans.

SATISFACTORY FINANCIAL OPERATIONS SUPPORTED BY AMPLE ALTERNATE LIQUIDITY

We believe the township's financial operations will remain stable, despite recent declines in general fund reserve levels, given the significant amount of alternate liquidity provided by TIF revenue. The township's reserve levels decreased significantly from 2008 to 2009, from $2.6 million to $618,000 (or a narrow 8.5% of revenues), as the result of a loan from the General Fund for a capital project. The loan will be paid back with bond proceeds from the current issue. At the end of 2010, management projects a year-end General Fund balance of $1.5 million and an operating surplus of $500,000 driven by estate tax revenues and property tax revenues holding steady. In 2010, management implemented significant cost reduction measures, including entering into solar power agreements, which lowered the township's electricity costs by 35% and its gas costs by 45%. The 2011 budget is expected to be balanced. The township has a policy of maintaining $1.5 million in the General Fund and once the outstanding loan to the General Fund is paid back in the current fiscal year, the township will be in compliance with this guideline.

While we generally consider large fluctuations within reserve levels a negative pressure to credit quality due to cash-flow concerns, the township reports an additional $26 million in liquidity within its Special Revenue Fund, which is somewhat restricted for TIF and capital expenses, but bolsters the township's overall financial flexibility. While tax increment revenues, which make up a portion of the township's Special Revenue Fund, are earmarked for capital improvements, interest earnings can be used for any municipal purpose. The township transfers these earnings annually to enhance General Fund revenues. Transfers in since fiscal 2008 have averaged 53.6% of total General Fund revenues. General Fund operations are further supported by estate tax revenues which tend to be very volatile. Between fiscal 2005 and 2009, collections have averaged $4.8 million, ranging from a low of $2.5 million in 2005 to a peak in 2008 of $8.6 million. This is substantial, given that the average annual General Fund revenues in those years was $5.6 million. In response to the volatility of this revenue source, township management conservatively budgets for $1 million in annual revenues received from this source. We believe the township manages its reliance on an unpredictable revenue source through conservative budgeting.

MATURE TOWNSHIP IN CINCINNATI METRO AREA REALIZING CONTINUED COMMERCIAL NEW CONSTRUCTION

We believe the township's moderately-sized tax base, located in Hamilton County (Aa2/stable), will continue to experience only moderate growth in the near-term as a result of fairly stable real estate property values and the State of Ohio's (GO rated Aa1/negative outlook) complete phase-out of its tangible personal property tax from 2006 through 2009. While the township has benefited from significant retail and commercial development, most of the current development falls within the township's ten TIF districts and is not currently counted in its full valuation. One of the larger commercial developments is the Kenwood Towne Center, which is a primary retail destination in Hamilton County. The township, while fully built out, continues to experience redevelopment in its commercial areas. Management reports the township's Kenwood Center is 98% occupied. The FBI headquarters project, for which the current borrowing will provide important infrastructure, is expected to bring 300 new jobs to the township. Management expects the local retail sector to benefit from the increase in daytime population. Jewish Mercy Hospital is adding 45,000 square feet of new medical office space in connection with the hospital's expansion of its trauma center, in-patient facility and intensive care unit. Management further reports that UBS relocated to the township in 2010, yielding 125 new jobs. The unemployment rate for the township's school district, Sycamore Community School District (Aaa) was 9.4% in August 2010, tracking near state and national levels, which were 9.7% and 9.5%, respectively, for the same time period. Income indices for the district, which are representative of those of the township, track above state and national levels, with per capital and median family income at 179.6% and 171.9% of national figures, respectively, based on 2000 census data. We expect that the township's economy will continue to enjoy stability given its location, significant retail component which diversifies the tax base and as property values hold steady.

MANAGEABLE DEBT PROFILE; CASH FINANCING OF MOST CAPITAL EXPENDITURES

We anticipate the township's debt profile will remain affordable given limited borrowing needs. Inclusive of the current sale, the township's debt position is slightly higher than average, at 3.4% (1.2% direct). Principal retirement is below average, with 59.0% of debt retired in 10 years, compared to the US median of 77.3%. All of the township's debt is fixed rate and there is no exposure to derivatives or swap agreements.

WHAT COULD CHANGE THE RATING - UP

-Significant improvement in the township's financial profile, including decreased fluctuation in general fund balance

-Growth in the township's tax base

WHAT COULD CHANGE THE RATING - DOWN

-Sustained structural imbalance and an inability to maintain reserves or liquidity at satisfactory levels

- Deterioration of the township's tax base and demographic profile

KEY STATISTICS:

Population (2000 census): 19,765

2010 full valuation: $2.0 billion

Estimated full value per capita: $100,166

Sycamore Community City School District Per capita income (2000): $38,776 (as % of State: 184.6; as % of US: 179.6)

Sycamore School District Median Family income (2000): $86,046 (as % of State: 172.0; as % of US: 171.9%)

Debt burden: 3.4% (1.2% direct)

Principal amortization (10 years): 59.0%

Fiscal 2009 General Fund Cash Balance: $618,000

Fiscal 2009 Special Revenue Fund Cash Balance: $26 million

Post-sale general obligation debt outstanding: $21.5 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, 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

Megan Roudebush
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
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New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING TO SYCAMORE TOWNSHIP'S (OH) $1.66 MILLION ROAD IMPROVEMENT LIMITED TAX GENERAL OBLIGATION BONDS, SERIES 2010
No Related Data.
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