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New Issue:

MOODY'S ASSIGNS Aa3 RATING TO DAVIDSON COUNTY (NC) $20.1 MILLION LIMITED OBLIGATION BONDS, SERIES 2011 A&B;

06 May 2011

AFFIRMATION OF Aa2 G.O. RATING AFFECTS $120 MILLION OF PARITY DEBT

Municipality
NC

Moody's Rating

ISSUE

RATING

Limited Obligation Bonds, Series 2011A

Aa3

  Sale Amount

$6,800,000

  Expected Sale Date

05/04/11

  Rating Description

Certificates of Participation

 

Taxable Limited Obligation Bonds, Series 2011B

Aa3

  Sale Amount

$13,300,000

  Expected Sale Date

05/04/11

  Rating Description

Certificates of Participation

 

Opinion

NEW YORK, May 6, 2011 -- Moody's Investors Service has assigned an Aa3 rating to Davidson County's (NC)$20.1 million Series 2011 A & B Limited Obligation Bonds (LOBs). At this time, Moody's also affirms the Aa2 general obligation rating on the county's $120 million parity debt. The LOBs are secured by installment payments, subject to annual appropriation, and by recourse to county assets in the event of non-appropriation. The current issue will finance construction of a new middle school, some small sewer improvements, and the refunding of the County's 1998 COPs with a NPV savings of 6.7%, without extending the maturity of the debt.

RATINGS RATIONALE

The Aa3 LOB rating is based on the legal security and the high degree of project essentiality, as well as the county's favorable long-term credit characteristics (GO rated Aa2), which include an economic base that, despite some strain in the area's large furniture industry, has remained relatively stable. Additionally, financial operations remain stable with ample reserves and the county's debt burden is expected to remain low despite planned borrowing for school construction needs.

STRENGTHS:

- Satisfactory financial position with healthy reserves.

- Sizable tax base.

- Manageable debt burden.

CHALLENGES:

- Notable degree of tax base concentration in manufacturing.

DETAILED CREDIT DISCUSSION

SATISFACTORY LEGAL PROTECTIONS FOR BONDHOLDERS; ESSENTIAL ASSETS PLEDGED AS COLLATERAL

Moody's believes that the essential nature of the pledged assets mitigates the risk of non-appropriation by the county, and that other legal provisions adequately protect bondholders. In the event of non-appropriation, the county would lose title to a jail, a courthouse and a parking garage, providing collateralization of over 100% of outstanding principal under the Trust Indenture. The county will make payments under the Installment Purchase Contract directly to the Trustee, at least five days prior to debt service payment dates. Further strengthening security, the county has covenanted to include the appropriation in its preliminary budget. The county's demonstrated track record of appropriating for installment payments, and strong underlying credit quality are important factors in the rating. The financing does not include a debt service reserve fund.

STABLE FINANCIAL POSITION BOSTLERED BY HEALTHY RESERVES

The county's financial position is expected to remain stable, given prudent financial management and continued maintenance of ample reserve levels. The county ended fiscal 2010 with an operating surplus of $3.1 million, the county's fifth consecutive year of position operations. The operating surpluses have historically been driven by conservative revenue estimates, primarily sales and property tax. At year-end the county had a $53.7 million total General Fund balance (a sound 43.7% General Fund revenues), with $41 million, or 33.4% of General Fund revenues undesignated. Although the county has no formal General Fund policy, officials have maintained reserves at or about the same level for each of the last seven years. The county's finances are supported by a diverse revenue stream of property taxes (71.9%) sales taxes (5.6%) and intergovernmental revenues (20.6%). For fiscal 2011, officials are targeting to maintain reserves at fiscal 2010 levels; however this may be challenging given a budgeted $2 million fund balance appropriation for economic development.

The fiscal 2012 budget, which the county anticipates will grow by approximately 1.5% is balanced with a $3 million fund balance appropriation and no tax rate increase.

TAX BASE REMAINS STABLE DESPITE SOME STRAIN IN FURNITURE AND TEXTILE INDUSTRIES

Located in central North Carolina along the I-85 corridor and home to the cities of Lexington (GO rated A1) and Thomasville (GO rated A1), Davidson County benefits from its location between the cities of Winston-Salem (GO rated Aaa) and Greensboro (GO rated Aaa). Situated in the heart of the Piedmont Triad, furniture manufacturing remains the county's primary employer as the area is home to both Lexington Home Brands and Thomasville Furniture, both employing over 1,000 people. Although furniture manufacturing remains the largest industry in the county, officials have endeavored to diversify the industrial base with growth in the services, trade and retail sectors. In addition, the county has seen slow but steady increases in residential development with the majority of the growth taking place in the northern portion of the county. The county has experienced some economic pressure in the last decade in its large furniture and textile sectors, as the national economic slowdown has resulted in decreased demand and production has shifted overseas. The furniture sector reported layoffs in 2003, totaling a headcount reduction of approximately 950. In association with these layoffs, two of these furniture companies closed plants (Lexington Furniture and Thomasville), while one closed its operations (Council Craftsman). The county reports a slow revitalization of furniture manufacturing and economic development efforts with a number of projects in 2010 accounting for an addition of more than 2,500 jobs in the area.

The county's $12.2 billion tax base has averaged annual growth of 4.9% over the past five years, including one year of property reappraisal which resulted in double digit growth (fiscal 2007) . The county unemployment rate is currently at 11.4% (February 2011), reflecting a level of unemployment which is higher than the state (10.1%) and national rate of (9.5%) for the same time

DEBT BURDEN EXPECTED TO REMAIN LOW DESPITE PLANS FOR NEW ISSUANCE

Moody's believes the county's debt burden will remain low, despite plans to issue additional debt, given an above average repayment schedule and an already extremely low debt ratio. At 0.8%, the county's debt ratio is low with approximately 58% of principal expected to be repaid within the next ten years. Future borrowing plans include a possible issuance of long-term debt to finance a High School renovation in the County. The county does not have any variable rate debt outstanding.

WHAT COULD MAKE THE RATING CHANGE- UP

-- Continued improvement to the county's financial position

-- Strengthening of demographic profile to levels more consistent with higher rating categories

WHAT COULD MAKE THE RATING CHANGE- DOWN

-- Protracted structural budget imbalance

-- Depletion of General Fund balance

-- Deterioration of County tax base.

KEY STATISTICS

2010 population: 159,947

FY 2011 Full valuation: $12.6 billion

FY 2011 Full value per capita: $79,384

Debt burden: 0.8%

Payout of principal (10 years): 58.4%

FY10 General Fund balance: $53.7 million (43.7% of General Fund revenues)

FY10 Undesignated General Fund balance: $41 million (33.4% of General Fund revenues)

Unemployment rate (February 2011): 11.4%

Median Family Income as a % of state: 99.8%

Per Capita Income as a % of state: 92.1%

Post-sale parity debt outstanding: $120 million

The principal methodology used in this rating was [PrincipalMethodologyName] published in [Date].

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 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

Tiphany J. Lee
Analyst
Public Finance Group
Moody's Investors Service

Conor McEachern
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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USA

MOODY'S ASSIGNS Aa3 RATING TO DAVIDSON COUNTY (NC) $20.1 MILLION LIMITED OBLIGATION BONDS, SERIES 2011 A&B;
No Related Data.
© 2020 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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