Aa3 RATING AFFECTS $4.0 MILLION IN PARITY DEBT, INCLUDING CURRENT ISSUE
Primary & Secondary Education
General Obligation Refunding Bonds, Series 2011
Expected Sale Date
NEW YORK, Sep 2, 2011 -- Moody's Investors Service has assigned a Aa3 to Matagorda County
Navigation District Number One's $3,715,000 General Obligation Refunding Bonds,
Series 2011 and downgraded to Aa3 from Aa2 the rating on the district's $370,000
in outstanding parity debt.
UNDERLYING RATING RATIONALE
The bonds are secured by ad valorem taxes levied against all taxable
property within the district without limitation as to rate or amount.
The current issue will refund existing debt in order to achieve level
debt service requirements and maintain the existing tax rate for debt
service and will result in approximately 6% net present value savings.
The downgrade from Aa2 to Aa3 reflects the District's relatively limited and
concentrated tax base that is more consistent with the Aa3 rating. A mitigating
factor to the concentration is the strong General Fund reserve that was 1000% of
General Fund revenues in fiscal 2010. Favorably, the debt burden is low with
fast payout and there are no additional plans for near term future debt.
Strong General Fund reserve
Favorable debt profile with low debt burden and fast payout
Limited new construction occurring in the local economy
Tax base significantly concentrated at 80% in the largest taxpayer
DETAILED CREDIT DISCUSSION
CONCENTRATED TAX BASE IN SOUTH TEXAS
The District is located in a Texas Gulf Coast county on the Intracoastal Canal
with taxable values primarily based on the petrochemical industry and electrical
generation. These two industries dominate the top ten taxpayers of the District
and account for 85% of the District's assessed valuation. The largest taxpayer,
NRG Texas Power LLC, is 80.4% of the District's tax base and is
representative of its ownership in a nuclear power plant (South Texas Nuclear
Power Project), which is also owned by the City of San Antonio and the City of
Austin. The assessed valuation has historically fluctuated given the
concentration; however, management has demonstrated an ability to manage
through the fluctuations. In fiscal 2011, the tax base decreased 1.6% followed
by another 6.3% decline in fiscal 2012 bringing the tax base from a peak of
$1.49 billion in fiscal 2010 to $1.38 billion in fiscal 2012. While we recognize
that strong management is a mitigating factor, the concentration of 85% in the
largest taxpayers is substantial and is not consistent with other Aa2 ratings
and supports the downgrade to Aa3.
With an economy that centers around shrimping and recreational boating, the
District owns and operates various wharves and docking facilities and related
equipment and land. These facilities are all located on Tres Palacios Bay
adjacent to the City of Palacios, Texas. The District also owns and operates
four turning basins at the above site which have direct access to the Gulf of
Mexico via the Channel to Palacios and the Gulf Intracoastal Waterway. A planned
expansion at the nuclear power plant has been delayed indefinitely and the
related residential construction to accommodate an increase in employment has
been affected. The expansion is expected to occur and will eventually result in
additional new values that will add to the tax base.
STRONG GENERAL FUND RESERVES
The District has established a long history of maintaining General Fund balance
levels that are notably strong and supported by annual surpluses. Management is
conservative and has adopted Board policies to maintain these strong reserves in
the future. Between fiscal years 2006 and 2010, the fund balance increased from
$16.6 million to $19.3 million which was equal to 1,021% of General Fund
revenues. In fiscal 2010, revenues at the district totaled $1.8 million. For
fiscal 2011, officials projected that the General Fund balance could be
approximately $18 million given a one-time cash contribution to pay
off principal on debt. General Fund operations are supported by a mix of revenue
streams including investment income, rentals, and property taxes. Property taxes
typically provide less than 10% of operating revenues. The high level of
reserves demonstrates the District's strong management and is a key factor in
the Aa3 rating assignment.
DEBT BURDENS TO REMAIN LOW
The District's debt burden is favorable with a low 0.3% direct debt burden and a
0.9% overall debt burden. Payout is rapid with 100% of principal repaid in ten
years. Additionally, there are no plans for additional debt in the near term
which will keep the debt burdens low and consistent with a high rating. The
District has not entered into any swap agreements and all of the debt is fixed
WHAT COULD MAKE THE RATING GO UP
New construction diversifying the tax base
WHAT COULD MAKE THE RATING GO DOWN
Deterioration of General Fund balance and liquidity
Declines in property values leading to stress on property tax revenues and
ability to meet debt service obligations
2011 Full valuation: $1.38 billion
Full value per capita: $143,281
Matagorda County 2000 per capita income: $15,709 (72.8% of US)
Direct debt burden: 0.3%
Overall debt burden: 0.9%
Repayment of Principal (10 years): 100%
FY 2010 General Fund balance: $19.4 million (1,021% of General Fund revenues)
Post Sale Parity Debt Outstanding: $3.715 million
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009. Please see the
Credit Policy page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this
announcement provides relevant regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued
on a support provider, this announcement provides relevant regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides relevant regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance of the
debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that
would have affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS Aa3 RATING TO MATAGORDA COUNTY NAVIGATION DISTRICT NUMBER ONE $3,715,000 GO REFUNDING BONDS, SERIES 2011; DOWNGRADES TO Aa3 FROM Aa2 RATING ON OUTSTANDING DEBT
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007