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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

02 Sep 2011

Aa3 RATING AFFECTS $4.0 MILLION IN PARITY DEBT, INCLUDING CURRENT ISSUE

Primary & Secondary Education
TX

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds, Series 2011

Aa3

  Sale Amount

$3,715,000

  Expected Sale Date

09/06/11

  Rating Description

General Obligation

 

Opinion

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.

STRENGTHS

Strong General Fund reserve

Favorable debt profile with low debt burden and fast payout

CHALLENGES

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 rate.

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

KEY STATISTICS:

Population: 9,643

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.

REGULATORY DISCLOSURES

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.

Analysts

Kristin Button
Analyst
Public Finance Group
Moody's Investors Service

James Hobbs
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service, Inc.
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New York, NY 10007
USA

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
No Related Data.
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