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MOODY'S ASSIGNS Aa2 RATING TO THE CITY OF EULESS' (TX) $7.6 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011, AND $3.1 MILLION TAX AND WATERWORKS AND SEWER SYSTEM (LIMITED PLEDGE) REVENUE CERTIFICATES OF OBLIGATION, SERIES 2011

19 Jan 2011

Aa2 RATING AFFECTS $48.1 MILLION IN OUTSTANDING PARITY DEBT, INCLUSIVE OF CURRENT ISSUE AND REFUNDING

Municipality
TX

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds, Series 2011

Aa2

  Sale Amount

$7,600,000

  Expected Sale Date

01/15/11

  Rating Description

General Obligation Limited Tax

 

Tax and Waterworks and Sewer System (Limited Pledge) Revenue Certificates of Obligation, Series 2011

Aa2

  Sale Amount

$3,100,000

  Expected Sale Date

01/15/11

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Jan 19, 2011 -- Moody's Investors Service has assigned a Aa2 underlying rating to the City of Euless' (TX) $7.6 million General Obligation Refunding Bonds, Series 2011, and $3.1 million Tax and Waterworks and Sewer System (Limited Pledge) Revenue Certificates of Obligation, Series 2011. Concurrently, Moody's has affirmed the Aa2 rating on the City's $37.5 million outstanding parity debt, reflecting the net impact of the current refunding. Proceeds from the current sale will refund certain maturities of the Series 2006, Series 2001, and Series 2001 debt obligations for an expected 3.25% net present value savings and no extension of the final maturity. Proceeds from the sale of the certificates will be used for various street improvements, including drainage, landscaping, and acquisition of rights-of-way, within the City.

RATING RATIONALE

The bonds and certificates are secured by a continuing and direct annual ad valorem tax levied, within the limits prescribed by law, on all taxable property within the City. The certificates are additionally secured by a limited pledge (not to exceed $1,000) of the net revenues of the City's Waterworks and Sewer System. The rating assignment reflects the city's sizeable tax base favorably located in the DFW Metroplex, modest debt profile, and healthy financial reserves.

STRENGTHS

*Available liquidity outside the General Fund

*Favorable proximity to DFW employment base

*Above-average socioeconomic profile

WEAKNESSES

*Reliance on economically sensitive revenues

*Two consecutive years of tax base contraction

MODEST TAX BASE DECLINE; FAVORABLE SOCIOECONOMIC PROFILE

The City of Euless is located in Tarrant County (Aaa general obligation rating), halfway between the cities of Dallas (Aa1 with stable outlook) and Fort Worth (Aa1 with stable outlook). Approximately 31% of the city's land is within the Dallas-Fort Worth International Airport (DFW). The City is largely a bedroom community as residential properties comprise 70% of the $2.5 billion tax base. The five-year average annual growth rate in assessed valuation is a modest 2.3%, inclusive of declines in fiscal 2010 and fiscal 2011 (-2.6% each year). Management conservatively projects the city's tax base will remain flat over the near term and forecasts a modest 1% to 2% annual rate of growth over the intermediate term. The city's population has increased approximately 19% since the 2000 U.S. Census to an estimated 54,700 residents. Wealth indicators are favorable as measured by per capita income and median family income (from 2000 U.S. Census) that approximate 121.1% and 119.3% of the state levels, respectively. The October 2010 unemployment rate of 7.4% was below the state (7.9%) and the U.S. (9.0%) for the same time period. With 1,065 acres of undeveloped land outside of DFW, we believe the City's tax base will expand over the long term; however, we expect short-to-intermediate term growth trends will remain below historical averages due to the current economic cycle.

HEALTHY FINANCIAL OPERATIONS; ADDITIONAL LIQUDITY OUTSIDE GENERAL FUND

The City has historically met and exceeded the council-adopted policy to maintain a minimum General Fund Balance of 30 days of working capital. Currently, the City maintains 60 days of working capital reserves, equal to 16.4% of budgeted expenditures. After three consecutive years of adding to reserves, the city utilized $2.3 million in reserves in fiscal 2008 and $1.1 million in fiscal 2009 to cash fund capital projects. As such, the Fiscal Year 2009 General Fund balance was $7.6 million (28% of revenues). General Fund revenues for fiscal year 2009 were largely derived from property taxes (33%), sales taxes (27%), and gross receipts taxes (14%). Consistent with historical practices, the fiscal 2010 budget included a $1.7 million draw in reserves to fund capital projects. According to preliminary, unaudited financial statements, management only used $29,000 of reserves and estimates the General Fund balance was $7.6 million at FYE 2010 (or 28% of General Fund revenues). The fiscal year 2011 budget includes $1.5 million appropriated fund balance, exclusively for non-recurring expenditures.

The City maintains additional liquidity outside the General Fund in a Rental Car Tax Fund. A 5% tax is levied on all short-term motor vehicle rentals within the city limits, which includes the DFW consolidated rental car facility. The revenues are evenly distributed among the cities of Euless, Dallas, and Fort Worth per a revenue sharing agreement. Although the City has historically utilized this funding source to stabilize the property tax rate and to cash fund capital projects, these revenues are available for any lawful purpose. Council-approved policy requires a minimum of $2 million be held as reserve in the Car Rental Tax Fund; however, the fund held $4.2 million at the end of FY 2009 and management estimates, according to preliminary, unaudited financial statements, the balance was $5.8 million at FYE 2010. We believe this additional liquidity is a credit strength, somewhat mitigating the city's dependence on economically sensitive revenues. Given demonstrated prudent fiscal management and adequate reserves, we expect the city's financial operations will remain healthy over the long-term.

SIGNIFICANT PAY-GO FINANCING YIELDS MODEST DEBT PROFILE

We believe that despite this modest increase in debt burden, the City's debt profile will remain manageable given limited plans for future borrowing. The City's direct debt burden is a modest 1.9% of fiscal 2011assessed valuation. The overall debt burden is higher at 5.0% largely due to general obligation debt issued by Hurst-Euless-Bedford ISD (Aa2) and Grapevine-Colleyville ISD (Aa2). The city has no exposure to variable debt or interest-rate swap agreements. Amortization of outstanding debt is consistent with similarly-rated credits, as 74.6% of principal debt is scheduled to be retired in ten years. According to the five-year capital improvement plan, the city plans to continue pay-as-you-go financing for a majority of capital projects. Proceeds from the certificates will be used to fund street improvements as part of the first phase of construction associated with the Glade Park development. City officials expect to complete the project in three phases over the next several years. Upon completion, this project is assumed to be supported by property tax revenues of the recently-created Glad Park Tax Increment Reinvestment Zone (TIRZ).

WHAT COULD CHANGE THE RATING - UP

*Substantial tax base growth

*Trend of increasing General Fund reserves

WHAT COULD CHANGE THE RATING - DOWN

*Continued contraction of tax base

*Deterioration of General Fund reserves resulting in reduced financial flexibility.

KEY STATISTICS

Estimated Populations: 54,700

FY 2011 Full Value: $2.5 billion

Full Value Per Capita: $46,124

Per Capita Income (from U.S. Census): $23,764 (121.1% of State; 110.1% of U.S.)

Direct Debt Burden: 1.9%

Overall Debt Burden: 5.0%

Payout of Principal: 74.6%

FY 2009 General Fund Balance: $7.66 million

Projected FYE 2010 General Fund Balance: $7.61 million

Post-sale Parity Debt Outstanding: $48.1

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

Nathan Phelps
Analyst
Public Finance Group
Moody's Investors Service

Toby Cook
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


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MOODY'S ASSIGNS Aa2 RATING TO THE CITY OF EULESS' (TX) $7.6 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011, AND $3.1 MILLION TAX AND WATERWORKS AND SEWER SYSTEM (LIMITED PLEDGE) REVENUE CERTIFICATES OF OBLIGATION, SERIES 2011
No Related Data.
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