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MOODY'S ASSIGNS Aa2 RATING TO THE TOWN OF NORTH READING'S (MA) $4.1 MILLION GENERAL OBLIGATION MUNICIPAL PURPOSE LOAN OF 2010 AND MIG 1 RATING TO $1.4 MILLION BOND ANTICIPATION NOTES 2010 SERIES

09 Sep 2010

Aa2 RATING AFFECTS $38 MILLION IN OUTSTANDING LONG-TERM RATED DEBT - INCLUDING CURRENT ISSUE

Municipality
MA

Moody's Rating

ISSUE

RATING

General Obligation Municipal Purpose Loan of 2010 Bonds

Aa2

  Sale Amount

$4,100,000

  Expected Sale Date

09/18/10

  Rating Description

General Obligation Limited Tax

 

General Obligation Bond Anticipation Notes

MIG 1

  Sale Amount

$1,400,000

  Expected Sale Date

09/18/10

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Sep 9, 2010 -- Moody's Investors Service has assigned a Aa2 rating to the Town of North Reading's (MA) $4.1 million General Obligation Municipal Purpose Loan of 2010; and a MIG 1 rating to $1.4 million Bond Anticipation Notes 2010 Series (dated September 15, 2010 and payable September 15, 2011). At this time, Moody's has also affirmed the town's Aa2 rating on $33.9 million of outstanding parity debt.

RATINGS RATIONALE

The bonds and bond anticipation notes are secured by the town's limited general obligation tax pledge. The Aa2 rating reflects the town's currently narrow financial position, which is expected to stabilize and increase in the short-term; sizeable tax base with future growth potential; above-average wealth levels and affordable debt burden. The MIG 1 rating reflects the town's demonstrated market access, as well as its solid long-term credit profile. Further diminishment of the town's financial flexibility could lead to downward pressure on the town's relative creditworthiness. Proceeds of the Series 2010 bonds will retire a like amount of BANs maturing September 16, 2010. A majority of the 2010 BANs, $1 million, will be used to fund a school district capital feasibility study.

DEMONSTRATED MARKET ACCESS

North Reading has demonstrated satisfactory access to the capital markets, having received four bids on its most recent note sale, dated April 8, 2010, and six and three bids on its prior note sales, dated June 18, 2009 and December 11, 2008, respectively. All bids were received from major regional and national financial institutions. Moody's believes that given this history, the town will be able to refund its notes, if necessary, at their September 2011 maturity.

SATISFACTORY FINANCIAL POSITION; UNRESTRICTED RESERVES EXPECTED TO IMPROVE

Moody's believes that although North Reading's financial position has begun to stabilize, future budgets are likely to face pressure in the medium term due to increasing personnel-related expense and anticipated limited revenue growth under the limitations of Proposition 2 ½. Following three consecutive operating surpluses that left the General Fund with $3.3 million or an adequate 6.1% of General Fund revenues, fiscal 2009 ended with a General Fund reserve decline that was partially driven by transfers to the Capital Stabilization Fund. Approximately $601,000 of the total $2.1 million General Fund reserve decline was a structural imbalance with the remaining draw on the General Fund reflecting transfers to various stabilization funds. The structural imbalance was driven by a $650,000 mid-year cut in state and highway and public works expenditures exceeding the budget by approximately $576,000 which were partially offset by expenditure savings from employee benefits ($728,000). Total General Fund reserves ended fiscal 2009 with $1.2 million or a very narrow 2.4% of General Fund revenues. Available reserves (including General Fund Unreserved balance and the Revenue Stabilization Fund) declined to $2.7 million (5.3% of General Fund revenues) from a stronger $2.8 million (7.9% of General Fund revenues) in 2008. The town derives considerable financial flexibility from its Capital Stabilization Fund which ended the year with an approximate year-end balance of $1.1 million and the balance could be transferred back to the General Fund to support operations. When the Capital Stabilization Fund is added to the other available reserves, the town's financial flexibility is stronger with an approximate $2.4 million (4.7% General Fund revenues) available to offset unforeseen budget fluctuations.

Unaudited fiscal 2010 results indicate an operating surplus and a modest increase to available reserves and the Capital Stabilization Fund. The projected positive operations were driven by local revenues performing better than budget by a reported $291,000 and savings throughout the budget including employee benefits ($125,000). The fiscal 2011 budget includes an overall 1% expenditure increase over the fiscal 2010 budget. Outside of approximately $300,000 to offset possible state aid reductions, the town currently does not anticipate using reserves to balance the budget. A departure from these projections that materially weakens the town's financial flexibility could negatively impact its relative creditworthiness. Although the town's stabilization funds could provide limited relief in the medium term, balancing future budgets while maintaining the current level of services in North Reading is expected to present a challenge as voters did not approve a recent operating override of Proposition 2 ½ and town officials do not anticipate proposing another override in the near term. In addition, the town could face additional financial pressure as the town and school district capital needs are evaluated relative to Proposition 2 ½ as the town has limited ability to accommodate significant debt service increases without operating budget reductions. Future rating reviews will incorporate the town's ability to maintain structural balance and an overall fiscal profile, adequate reserve levels, which is consistent with those in other comparably-rated communities.

TAX BASE GROWTH SLOWING AFTER COMPLETION OF MAJOR REDEVELOPMENT PROJECTS

Moody's anticipates that the town's $2.7 billion equalized value will continue to grow, albeit at more modest levels, in the medium term. Although limited water capacity and the lack of a town-wide sewer system could limit future development, North Reading maintains a good supply of available land and strong, although moderating, regional demand for new residential and commercial development. Located approximately 16 miles north of Boston (rated Aaa/stable outlook), North Reading has seen solid growth in equalized valuation (EQV). Due primarily to new residential construction and market value appreciation growth had averaged a healthy 12.6% annually from 2001-2007. However, with the state's proposed 2011 biennial equalized valuation decrease of 3.4%, average annual growth dropped to 2.7% for the six-year period 2005-2011. Town officials report that growth is expected to continue as several new developments are proposed or underway, including the recent completion of the redevelopment of an 86-acre parcel, formerly the site of a state hospital, for mixed-use including residential and commercial uses. Additionally, Teradyne, the town's largest taxpayer and employer plans to close its headquarters in the City of Boston and relocate 900 employees to the town, requiring additions to the current facility. North Reading's income levels exceed the national and approximate the state medians, and the strong $158,813 equalized value per capita which reflects healthy tax base diversity and quality.

AFFORDABLE DEBT BURDEN WITH LIMITED FUTURE BORROWING PLANS

Moody's expects North Reading's moderate 1.8% overall debt burden is currently manageable given satisfactory amortization of principal (74.1% within 10 years) although possible future borrowing plans, if not supported by successful debt exclusion votes, could place significant pressure on the overall budget given limited budgetary flexibility. Debt service claimed a manageable 8% of general fund expenditures in fiscal 2009. Favorably, the town established a capital stabilization fund which reportedly held $1.1 million at year-end fiscal 2009, and is expected to accumulate up to $2 million from building permit revenues in subsequent fiscal years which will be restricted for future debt service over the next 20 years, relieving capital expenditure pressure on the town's limited property tax levy. Future projects could include renovation or replacement of the town's high school, sewer system expansion, and senior center and other school improvements but the scope and timing of the projects have not yet been determined. North Reading has no exposure to variable or auction rate debt or swap agreements.

KEY STATISTICS

2008 Population (est, US Census): 17,272 (+24.8% since 2000)

2009 Equalized valuation: $2.7 billion

Equalized value per capita: $158,813 (99% of MA, 177% of US)

Average annual growth, equalized value (2005-2011): 2.7%

1999 Median family income: $86,341 (140% of MA, 172.5% of US)

1999 Per capita income: $30,902 (119.1% of MA, 143.2% of US)

Overall debt burden: 1.8%

Amortization of principal (10 years): 78.2%

Fiscal 2008 General Fund balance: $3.3 million (6.6% of General Fund revenues)

Fiscal 2008 Available Reserve $3.96 million (7.9% of General Fund revenues)

Fiscal 2009 General Fund balance: $1.2 million (2.4% of General Fund revenues)

Fiscal 2009 Available Reserve $2.7 million (5.3% of General Fund revenues)

Long-term general obligation debt outstanding: $38 million

The principal methodologies used in rating North Reading (Town of) MA were General Obligation Bonds Issued by U.S. Local Governments published in October 2009 and Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service's 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

Jessica A. Tevebaugh
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
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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New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING TO THE TOWN OF NORTH READING'S (MA) $4.1 MILLION GENERAL OBLIGATION MUNICIPAL PURPOSE LOAN OF 2010 AND MIG 1 RATING TO $1.4 MILLION BOND ANTICIPATION NOTES 2010 SERIES
No Related Data.
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