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MOODY'S ASSIGNS Aa2 RATING WITH STABLE OUTLOOK TO ST. LOUIS COUNTY'S (MO) $10.8 MILLION TAXABLE SPECIAL OBLIGATION BONDS (RESIDENTIAL ENERGY EFFICIENCY LOAN PROGRAM), SERIES 2011A AND 2011B

15 Apr 2011

AFFIRMS Aaa RATING ON $38.4 MILLION OF OUTSTANDING GO DEBT

County
MO

Moody's Rating

ISSUE

RATING

Taxable Special Obligation Bonds (Qualified Energy Conservation Bonds - Direct Pay) (Residential Energy Efficiency Loan Program), Series 2011A

Aa2

  Sale Amount

$10,550,240

  Expected Sale Date

04/19/11

  Rating Description

Special Obligation (Annual Appropriation)

 

Taxable Special Obligation Bonds (Residential Energy Efficiency Loan Program), Series 2011B

Aa2

  Sale Amount

$204,760

  Expected Sale Date

04/19/11

  Rating Description

Special Obligation (Annual Appropriation)

 

Opinion

NEW YORK, Apr 15, 2011 -- Moody's Investors Service has assigned a Aa2 rating to St. Louis County's (MO) $10.6 million Taxable Special Obligation Bonds (Qualified Energy Conservation Bonds - Direct Pay) (Residential Energy Efficiency Loan Program), Series 2011A, and $204,760 Taxable Special Obligation Bonds (Residential Energy Efficiency Loan Program), Series 2011B. Concurrently, we have affirmed the Aaa rating on the county's outstanding general obligation debt, the Aa1 rating on the county's outstanding special obligation debt for essential purposes, and the Aa2 rating on the county's outstanding special obligation debt for non-essential purposes. St. Louis County has $38.4 million of general obligation debt, $186.4 million of special obligation debt for essential purposes, and $149.5 million of special obligation debt for non-essential purposes. The outlook on the ratings is stable.

SUMMARY RATINGS RATIONALE

The Aa2 rating assignment reflects the county's pledge to annually appropriate for debt service, the non-essential nature of the project to be financed with bond proceeds, and the credit quality inherent in the county's Aaa general obligation rating. The Aaa general obligation rating is based on county's substantial tax base and role as the economic hub for eastern Missouri (general obligation rated Aaa/stable outlook); long trend of strong financial management that has continued despite recent declines in reserves; and manageable debt position. Proceeds of the current issue will finance home energy improvement loans to qualifying homeowners in the county.

STRENGTHS

- Large, affluent tax base serves as economic hub for eastern Missouri

- Well-managed financial operations supported by ample reserves

- Affordable debt levels with no exposure to variable rate debt or derivatives

CHALLENGES

- Declines in assessed valuation and sales tax revenues reflect the broader economic downturn

- General Fund operating deficit in fiscal 2009

DETAILED CREDIT DISCUSSION

BONDS SECURED BY ANNUAL APPROPRIATION PLEDGE

The purpose of the project being financed by current bond offering is non-essential to county operations. However, bondholders are still offered satisfactory security by the county's strong appropriation procedures and proven history of appropriating debt service payments. The bonds are secured by the county's pledge to annually appropriate for debt service from the General Fund, providing the necessary funds to the paying agent at least one business day prior to the debt service due date. The county's appropriation process includes: automatic inclusion of annual debt service in the budget; a five month window between typical council approval of the budget (December 31) and the first debt service payment (June 1 and December 1); and by county charter, if the council does not appropriate a budget, there is an automatic appropriation of one twelfth of the prior year's annual appropriation per month.

COUNTY'S SIZABLE AND DIVERSE ECONOMY ANCHORS EASTERN MISSOURI

The county's economy should remain stable over the long term due to a substantial and diverse set of employers as well as management's proactive approach towards economic development and job growth. St. Louis County, which excludes the City of St. Louis (Aa3/stable outlook), serves as the economic, employment and retail hub for the eastern Missouri and western Illinois region. The area encompasses about 17% of Missouri's population with an estimated 992,000 residents and nearly 27% of all the jobs within the state. Despite a 6.1% decline in the estimated full value in 2009 (a reappraisal year) and a 0.7% drop in full value in 2010, the current valuation of $102.6 billion is substantial.

Top employers and taxpayers within the county including Monsanto (senior unsecured A2/stable outlook), Edward Jones, and Express Scripts (senior unsecured Baa3/stable outlook) continue to perform well despite the broader economic downturn. Officials indicate Express Scripts recently broke ground on a new facility that will add 150 jobs within the next two years. Additionally, despite a trend to reduce government defense spending, Boeing (senior unsecured A2/negative outlook) the county's largest employer and third largest taxpayer, appears to be the sole bidder to supply the US Air Force with a new fleet of mid-air refueling tankers. In March 2010, the Pinnacle River City Casino opened its doors with 1,300 employees, which is expected to support tourism and retail expansion within the region. Additionally, DHR, an incubator business and subsidiary of World Wide Technologies, is consolidating operations and creating 500 jobs in the county over the next 24 months. The area economy is also supported by significant institutional presence from higher education and healthcare providers including Washington University (Aaa/stable outlook) and Barnes-Jewish Hospital (BJC Health System rated Aa2/stable outlook). Unemployment figures for the county mirror the state and national rates at 8.9% in February 2011. Resident income levels exceed state and national norms.

SOUND FINANCIAL POSITION ENHANCED BY STRONG MANAGEMENT AND SATISFACTORY RESERVES

The county's financial position is expected to remain strong despite a recent General Fund balance decline. The county recorded four consecutive operating surpluses between fiscals 2005 and 2008, increasing the General Fund balance from $93.4 million to $120.5 million in fiscal 2008, which equaled a sound 37% of revenues. Favorably, one-time revenue increases including a sizable jump in gross utility receipts (a 5% percent tax on electric, gas, telephone and water utilities) in fiscal 2007 and a settlement in protested property tax receipts in fiscal 2008 were primarily shifted to fund balance as opposed to financing increases to operations. In fiscal 2009, due to negative budget variances in sales taxes (which declined 8.4% from fiscal 2008) and property taxes, officials originally projected a decline in the General Fund balance of $30 million. In order to close the budget gap, several expenditure reductions were implemented including hiring and salary freezes. As a result, the General Fund balance declined by $10.5 million in fiscal 2009 to a still favorable $110 million, or 35% of General Fund revenues.

Officials built the fiscal 2010 budget based on assumptions of 0% growth in sales tax collections and a decline in property tax revenues based on a 5.5% decline in assessed valuation. Management also continued the salary and hiring freezes and reduced overall departmental budgets by 2% from fiscal 2009. Although audited financial results are not yet available, officials report that fiscal 2010 sales tax revenues decreased by 0.3% from fiscal 2009, revenues from the new casino totaled more than $8 million, and expenditures were 2.8% below estimates. Officials estimate that the General Fund balance increased to a healthy $123 million at the close of fiscal 2010. For fiscal 2011, officials budgeted a 0% increase in sales taxes and property taxes, while expenditures are expected to be more than $10 million below fiscal 2010 levels due in part to the reduction of 32 vacant positions.

DEBT BURDEN EXPECTED TO REMAIN LOW

The county's debt burden will likely remain low due to moderate future borrowing plans. Inclusive of the current transactions, the county's overall debt burden is manageable at 1.6% of full value (0.4% direct). The rate of repayment is relatively slow but adequate, with 48% of principal retired in ten years. Officials plan to continue the annual practice of issuing cash flow notes; $28 million is expected to be issued in the summer of 2011. In addition, the county may seek voter approval to issue general obligation debt in 2012 for various capital improvements. All of the county's debt is fixed rate and the county is not party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - DOWN

- Deterioration in the county's general obligation rating

- Failure to appropriate for debt service

- Declines in General Fund balance and/or liquidity to levels below similarly rated entities

KEY STATISTICS

2009 estimated population: 992,408 (2.4% decline from 2000)

2010 estimated full valuation: $102.6 billion

Estimated full value per capita: $103,430

1999 per capita income: 128% of US

1999 median family income: 123% of US

February 2011 unemployment rate: 8.9%

Fiscal 2009 General Fund balance: $110 million (35% of General Fund revenues)

Debt burden: 1.6% (0.4% direct)

Principal amortization (10 years): 48%

General obligation debt outstanding: $38.4 million

Special obligation debt for essential purposes outstanding: $186.4 million

Special obligation debt for non-essential purposes outstanding (including current bonds): $149.5 million

Short term debt outstanding: $28 million

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004.

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

Rachel Cortez
Analyst
Public Finance Group
Moody's Investors Service

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

Contacts

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


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING WITH STABLE OUTLOOK TO ST. LOUIS COUNTY'S (MO) $10.8 MILLION TAXABLE SPECIAL OBLIGATION BONDS (RESIDENTIAL ENERGY EFFICIENCY LOAN PROGRAM), SERIES 2011A AND 2011B
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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