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MOODY'S ASSIGNS Aa3 RATING TO HUDSON COUNTY IMPROVEMENT AUTHORITY'S (NJ) $12.5 MILLION COUNTY-GUARANTEED SPECIAL OBLIGATION REVENUE BONDS, SERIES 2010 (TOWNSHIP OF WEEHAWKEN PORT IMPERIAL PARKING REDEVELOPMENT)

17 Dec 2010

AFFIRMS Aa3 RATING AND REVISES OUTLOOK TO NEGATIVE ON COUNTY'S LONG-TERM GO DEBT

County
NJ

Moody's Rating

ISSUE

RATING

County- Guaranteed Special Obligation Revenue Bonds, Series 2010 (Township of Weehawken Port Imperial Parking Redevelopment Project)

Aa3

  Sale Amount

$12,500,000

  Expected Sale Date

12/16/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Dec 17, 2010 -- Moody's Investors Service has assigned a Aa3 rating to Hudson County Improvement Authority's (NJ) $12.5 million County-Guaranteed Special Obligation Revenue Bonds (Township of Weehawken Port Imperial Parking Redevelopment Project). Concurrently, Moody's has revised the county's outlook to negative from stable and affirmed the county's Aa3 general obligation bond rating, affecting $592 million of parity debt previously issued or guaranteed by the county, including the current issue.

RATINGS RATIONALE

Proceeds of the issue will provide a loan to the Township of Weehawken (G.O. rated Ba1) for a like amount in order to finance the construction of a parking facility. While the bonds are expected to be repaid from borrower loan repayments from Weehawken, the ultimate security for this issue is derived from Hudson County's absolute and unconditional obligation to cure any deficiency in the Bond Service Fund prior to principal and interest dates. Therefore assignment the Aa3 is based on the county's long-term general obligation rating of Aa3 with a negative outlook.

Revision of the county's outlook to negative from stable reflects the county's newly exposed risk to the authority's relatively stressed solid waste system through the guarantee of a concurrent debt issuance. The negative outlook also reflects the county's exposure to short-term market volatility as county and county-guaranteed short-term notes and bonds, amounting to $320 million, represent approximately one-third of total outstanding debt and take the form of maturities ranging from $27 million to $163 million. Affirmation of the county's long-term general obligation rating of Aa3 reflects the county's substantial, expanding tax base and our expectation that the county will maintain a financial position supported by conservative management of declining, economically sensitive revenues and limited reliance on one-time revenue sources.

SECURITY ULTIMATELY DERIVED FROM GENERAL OBLIGATION OF COUNTY

The bonds and notes are special obligations of the authority, payable from and secured by solid waste system net revenues, but ultimately secured by a Hudson County Guaranty Ordinance. The county's obligation to make payments under the guaranty is absolute and unconditional and is backed by the county's general obligation unlimited tax pledge, pursuant to the Guaranty Ordinance. Under the Guaranty Agreement, the trustee shall notify the county, authority and township within 2 business days of the 30th day prior to debt service payment dates of a deficiency in the bond service fund or bond reserve fund. If the authority does not cure the deficiency within 15 days prior to debt service payment dates the trustee will notify the county within 2 days and the county must cure the deficiency within 2 business days prior to debt service. We believe this structure gives the county sufficient time to appropriate for debt service, if necessary.

SUBSTANTIAL TAX BASE WITH BELOW AVERAGE WEALTH LEVELS

Moody's expects continued growth in the county's substantial $66.8 billion tax base (estimated for 2010) given ongoing development, albeit at more moderate levels, as the county has been impacted by the slowing residential housing market. The county benefits from its location directly across the Hudson River from New York City (rated Aa2/stable outlook) as well as the significant development and available employment within the county. The county has an excellent transportation network, including highways, railroad, commuter rail, ferry and underground train service to New York City, all of which support the flow of residents to and from New York. After September 11, 2001, many New York City-based companies, including Goldman Sachs (senior unsecured debt rated A1/negative outlook), UBS (long term debt rated Aa3/negative outlook) and Credit Suisse First Boston moved all or a portion of their operations to the county. The economic activity along the waterfront in Jersey City (G.O. rated A2/stable outlook) is notable, although some of these properties have been granted multi-year PILOT contracts and therefore are not included in the county's current tax base valuation. Other municipalities in the county, including Bayonne (G.O. rated Baa1/negative outlook), Hoboken (Guaranteed Hospital Revenue Bonds rated Baa3), West New York (no rating) and Harrison (G.O. rated Baa1/negative outlook), have begun to implement redevelopment plans, which are expected to spur additional growth in the medium term.

Growth in equalized values, which had averaged a strong 16.9% annually between 2003 and 2008, slowed considerably to a modest 2.8% in 2009, reflecting the economic recession and housing market downturn. Growth is expected to remain modest over the near term as development continues to be dampened by current economic conditions, although officials report some recent stabilization of housing prices. The county is experiencing increased tax appeal claims, although the impact on tax base valuation is not clear. Added and Omitted Tax revenues, which reflect properties added during the course of the year, increased significantly in 2008 ($4.8 million as compared to $2.8 million in 2007), evidencing a combination of new development and properties in Jersey City that were formerly making PILOT payments coming onto the tax rolls. This new revenue continued at a moderate pace in 2009 and 2010, with growth of $1.7 million and $2.8 million, respectively. A solid equalized value per capita of $114,701 only partially reflects the quality of development, as much of the new real estate is not yet on the tax rolls. Socio-economic indicators fall 20% to 30% below state levels and the poverty rate of 15.5% as of the 2000 Census is the second highest in the state. The March 2010 unemployment rate of 11.1% is above state and national medians (10.2% and 10.2%, respectively) and a marked increase from a year ago when unemployment equaled 9.7%.

STABLE, ALBEIT NARROW, RESERVE LEVELS

Moody's expects the county to maintain its Current Fund balance at approximately the current level given a four-year track record of maintaining reserves between 5% and 6% and the county's stated commitment to maintaining structural balance, as reflected in annual moderate property tax increases and conservative budgeting of economically sensitive revenue sources. The county ended fiscal 2008 with a Current Fund balance of $24.3 million (5.27% of revenues) after fully replenishing $22 million of appropriated fund balance in the budget and adding $1.8 million to reserves. Notably, revenues from the Register of Deeds exceeded budgeted levels by more than $500,000, reflecting a conservative approach to budgeting of this economically sensitive revenue stream (budgeted at $9.4 million as compared with $13 million in actual receipts in 2007). This differentiates the county from other counties, many of whom experienced shortfalls in this area in 2008. Sources of fund balance replenishment included surplus budgeted revenues ($2.4 million), particularly related to housing federal inmates and the county's jail facility, the receipt of non-budgeted revenues ($6.7 million), and the cancellation of current year appropriations, prior year appropriation reserves, and contracts and commitments ($3.2 million, $4 million and $4.5 million, respectively). The county receives approximately one-half of Current Fund revenues from property taxes, which local municipalities are responsible for remitting to the county in full, thereby ensuring a high level of predictability for its major revenue source.

Fiscal 2009 operations resulted in a modest increase in the Current Fund balance of $243,000 after replenishing $23.8 million of appropriated surplus. Consequently, reserves grew to a solid $24.5 million, or 5.21% of revenues. Sources of replenishment included over-performance of anticipated revenues (by approximately $1.5 million) driven by strong results at the county's hospital, the receipt of unanticipated revenue from housing state and federal inmates at the county's jail facility ($4.5 million), the cancellation of current year expenditures ($6.7 million) largely resulting from vacant positions (approximately 350 positions), , and the cancellation of prior year appropriation reserves in line with recent trends. Register of Deeds revenues were budgeted to decline to $6.8 million (compared with actual collection of $10.06 million in 2008), in keeping with recent past practice. These economically sensitive revenues came in close to budget for the year. Fiscal 2009 operations reflect the deferral of a portion of the county's pension contribution ($6.8 million) as allowed by state law in 2009.

Year-to-date fiscal 2010 operations indicate full replenishment of $24 million of appropriated reserves and a modest addition to fund balance. Despite significant increases in pensions costs of approximately $7 million (resulting from the deferral in 2009) and health benefit costs of approximately $5 million, total appropriations for 2010 declined by 1.3% (budget to budget), reflecting work force reductions through attrition and hiring freezes. Given year-to-date figures, appropriated fund balance is expected to be replenished with the payment received from this refunding and nonbudgeted revenues from additional prisoner inmates in conjunction with traditional sources of replenishment.

DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE; SIGNIFICANT EXPOSURE TO COUNTY-GUARANTEED DEBT

Moody's expects that the county's above average overall debt burden (1.3%) will remain manageable given limited future borrowing plans, ongoing tax base expansion and below average amortization of debt (70.7% repaid within 10 years). We also note the county's large amount of guaranteed short- and long-term debt (53% of total outstanding debt), particularly $39.4 million of county-guaranteed Harrison Stadium Land Acquisition Special Obligation Capital Appreciation Bonds, Series 2006 A-1 and A-2 (G.O. rated Aa3/negative outlook). Although the county has not been called upon to pay debt service for these bonds, the development site is not generating sufficient PILOT payments to cover debt service as intended, and Harrison (G.O. rated Baa1/negative outlook) has paid this year's debt service with short term notes issued through the authority. The town is uncertain at this point if it will again utilize short-term debt to pay debt service related to these bonds in 2011. We believe that the county may be called upon to make payment.

Debt service on bonds accounted for just 3.4% of fiscal 2009 expenditures, reflecting the fact that the county has financed a significant portion of its infrastructure through lease purchase agreements (approximately $286 million outstanding as of September 2010). In addition to guaranteed BANs and short-term bonds of $320 million, the county has guaranteed $126.4 million of capital improvement bonds issued by the Hudson County Improvement Authority, which is included in the debt burden as debt service is expected to be repaid from the stressed solid waste enterprise system and the Town of Harrison. We view the large amount guaranteed debt, over 50% of the county's total outstanding debt, as a potential risk to financial stability should any one guaranty be called upon from the currently challenging environment.

NEGATIVE OUTLOOK

Revision of the county's outlook to negative from stable reflects the county's newly exposed risk to the authority's relatively stressed solid waste system through the guarantee of the current debt issuance. The negative outlook also reflects the county's exposure to short-term market volatility as county and county-guaranteed short-term notes and bonds, amounting to $320 million, represent approximately one-third of total outstanding debt and take the form of maturities ranging from $27 million to $163 million.

The solid waste system has relied on cash reserves in recent years to make debt service. Although in compliance with applicable rate covenants, the use of cash on hand to meet debt service demonstrates a stressed financial position that places additional risk to the county's financial health should the guaranty be called upon. Excluding the use of cash reserves, debt service coverage was a narrow .36 times annual debt service in 2007 and .19 time debt service in 2008. In fiscal 2009 the system paid the entire debt service payment with cash reserves , as net revenues posted a negative $950,000. Notably, the authority's cash reserves were funded with a required payment from the county of $33 million, made in 3 installments, for an interest in property owned by the system. Moving forward, the solid waste system plans to utilize adopted rate increases and annual debt service savings generated from this restructuring to meet debt service requirement with only net revenues, which we believe may be a challenge. Additionally, the system's customer base is ensured by regulatory flow control which may come under legal challenges as tipping fees rise above already above-average levels.

WHAT COULD CHANGE THE RATING UP (REMOVAL OF NEGATIVE OUTLOOK):

- Curtailed use of guaranteed debt

- Growth in taxable assessed valuation over the medium term

-Increased Current Fund balance

- Increased liquidity

- Accelerated payout of debt burden

WHAT COULD CHANGE THE RATING DOWN:

-Increase in guaranteed debt or short-term debt

-Poor financial performance of solid waste system

-Decreased market appetite for Hudson County-guaranteed short-term debt

-Failure to pay county-guaranteed debt service payments should the need arise

- Material multi-year declines in fund balances and liquidity

- Significant growth in the county's direct debt burden

KEY STATISTICS

2000 Population: 601,146

2007 Population (est.): 598,160

20010 Equalized Value (estimated): $66.8 billion

20010 Equalized Value Per Capita: $111,524

1999 Per Capita Income (as % of State and US): $21,154 (78% and 98%)

1999 Median Family Income (as % of State and US): $44,053 (67% and 88%)

Direct Debt Burden: 1.4%

Amortization of Principal (10 years): 70.7%

Fiscal 2008 Current Fund balance: $24.3 million (5.27% of Current Fund revenues)

Fiscal 2009 Current Fund balance (unaudited): $24.5 million (5.2% of Current Fund revenues)

Long term G.O. debt outstanding: $229 million (approximately $230 million rated by Moody's)

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, 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

Josellyn Yousef
Analyst
Public Finance Group
Moody's Investors Service

Andy Moleon
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
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 Aa3 RATING TO HUDSON COUNTY IMPROVEMENT AUTHORITY'S (NJ) $12.5 MILLION COUNTY-GUARANTEED SPECIAL OBLIGATION REVENUE BONDS, SERIES 2010 (TOWNSHIP OF WEEHAWKEN PORT IMPERIAL PARKING REDEVELOPMENT)
No Related Data.
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