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MOODY'S ASSIGNS Aa3 RATING TO THE CITY OF HAMILTON'S (OH) $23.3 MILLION GOLT VARIOUS PURPOSE BONDS, SERIES 2011 AND MIG 1 RATING TO $5.9 MILLION GOLT BOND ANTICIPATION NOTES; OUTLOOK REMAINS STABLE

09 Sep 2011

AFFIRMATION OF Aa3 RATING APPLIES TO $32.4 MILLION OF OUTSTANDING GOLT DEBT

Municipality
OH

Moody's Rating

ISSUE

RATING

General Obligation Various Purpose Bonds

Aa3

  Sale Amount

$23,320,000

  Expected Sale Date

09/14/11

  Rating Description

General Obligation Limited Tax

 

Water System Improvement General Obligation Bond Anticipation Notes

MIG 1

  Sale Amount

$5,910,000

  Expected Sale Date

09/14/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Sep 9, 2011 -- Moody's Investors Service has assigned a Aa3 rating to the City of Hamilton's (OH) $23.3 million Various Purpose Limited Tax General Obligation Street Improvement and Building Refunding Bonds, Series 2011 and a MIG 1 rating to Hamilton's $5.9 million Water System Improvement Limited Tax General Obligation Bond Anticipation Notes. The city's outlook remains stable. Concurrently, Moody's has affirmed the city's Aa3 rating on $32.4 million of outstanding long-term debt.

SUMMARY RATINGS RATIONALE

The bonds are secured by the city's General Obligation Limited Tax pledge, subject to the State of Ohio's ten- mill limitation. Approximately $20.7 million of the proceeds will refund select maturities of the city's outstanding Series 2001 and Series 2002 bonds for an estimated present value savings of $1.7 million. $2.6 million of the bond issuance represents new money and will finance street improvements. Proceeds of the GO Bond Anticipation Notes will finance water system projects, including main replacements. The Aa3 rating reflects the city's satisfactory financial operations that have stabilized as a result of significant budgetary adjustments, a moderately-sized tax base located in growing Butler County (GO rated Aa1) between the Cincinnati (Aa1/stable) and Dayton (Aa2/stable) metro areas, and manageable debt levels with no immediate General Obligation borrowing expected.

STRENGTHS

-Moderately-sized tax base situated between Cincinnati and Dayton

-Modest direct debt burden

CHALLENGES

-Elevated debt burden attributable to overlapping entities

-Reliance on economically-sensitive income tax revenues

DETAILED CREDIT DISCUSSION

EXPECTED MARKET ACCESS SUPPORTS MIG 1 RATING

The city's demonstrated ability to access the market includes four bond issuances in the last two years through negotiated sales. The BANs are expected to be sold on September 20, 2011 and mature one year from closing. The city expects the note issuance will be retired prior to maturity with proceeds from the sale of long-term water revenue bonds. The notes are backed by the city's general obligation pledge, subject to the ten-mill limitation. Management is expected to make adequate provisions to address potential market disruptions at the time of the takeout financing, by planning the take out debt in advance of the final maturity, and considering alternate back up plans if necessary. The current offering will be sold on a negotiated basis with representatives from Fifth Third Bank, the underwriter on the note sale, anticipating favorable market access given the underlying credit quality of the city.

MODERATELY-SIZED TAX BASE WITHIN CINCINNATI-DAYTON METRO REGION; SIGNIFICANT INSTITUTIONAL PRESENCE

The city's $2.6 billion tax base will likely remain stable in the medium term due to the presence of government employers, historical efforts to diversify the local economy, and a favorable location in rapidly-growing Butler County. Hamilton is the county seat of Butler County, one of the fastest growing counties in the state of Ohio, and is located approximately 30 miles north of Cincinnati and 40 miles south of Dayton. As the county seat, Hamilton benefits from the presence of 900 county jobs (the city's third largest employer). The two largest employers, Fort Hamilton Hospital and the school district (1,250 employees each) are both relatively stable employers as well. The city saw some downsizing in 2008 and 2009 with its paper mills and automobile parts suppliers, but city officials note that employers in both industries have been calling back previously laid off employees. Additionally, ThyssenKrupp Bilstein, shock absorber manufacturer, announced the investment of $7.3 million in local operations, which is expected to create 60 new jobs over a 3 year period. Despite continued economic development and employment growth among major employers, the city's unemployment rate is elevated, at 10.5% in June 2011, compared to 9.2% for the state and 9.3% for the nation, for the same time period. Resident income levels in the city are below national medians with per capita income and median family income at 81% and 84% of the nation, respectively, in the 2000 census.

BUDGETARY ADJUSTMENTS LEAD TO STABILIZATION OF FINANCES; CITY DEPENDENT ON ECONOMICALLY-SENSITIVE INCOME TAX REVENUES

The city's General Fund reserve levels will likely remain stable in the near-term due to recent expenditure reductions and revenue enhancements. The city's General Fund has recorded a trend of operating deficits which caused reserves to decline from a high of $8 million (24% of General Fund revenues) in Fiscal 2005 to a narrow $2.8 million (7.9% of revenues) in fiscal 2008. The year-over-year declines were driven by a combination of the cash financing of capital projects, generous pay increases negotiated with labor units, and a softening of operating revenues. In mid- 2008, as a result of revenue falloff, management implemented a number of adjustments to offset falling revenues including a hiring freeze, a 3% department-wide expenditure reduction, and elimination of raises to non-union staff. The city also enacted two-thirds of the permitted kilowatt hour utility tax which generated $1.8 million in additional revenues starting in fiscal 2009. In fiscal 2009, with revenues continuing to trail budgeted expectations, management implemented additional budgetary adjustments. A total of $5.4 million in permanent expenditure reductions were implemented which included layoffs, elimination of vacant positions, a mechanism to allow for furloughs (though none were implemented), and overtime restrictions agreed upon by the city's labor units, and a permanent 10% department-wide cut. The city also implemented the final one-third of the allowable kilowatt hour tax with the additional revenues generated by the increase designated for street improvements. In light of the adjustments, the city ended fiscal 2009 with a modest operating deficit of $199,000 and an ending General Fund balance of $3.1 million, or an improved 9.5% of revenues.

Audited figures from fiscal 2010 show a $2.1 million operating surplus, bringing General Fund reserves to $5.3 million, or 15.5% of revenues. The addition to reserves was primarily revenue driven as most revenue streams exceeded budgeted figures. Notably, estate tax revenues exceeded budget by approximately $1 million. Due to the uncertain nature of the revenue, management has historically budgeted $1 million for the revenue source annually. In addition to favorable revenue trends, management notes that total General Fund expenditures declined by 3% from fiscal 2010 figures due to the continued impact of previous reductions. Current projections for fiscal 2011 expect the collection of a substantial $7 million in estate tax revenues. Management has outlined plans to deposit $4.5 million in a newly established working capital reserve fund reserved for emergency capital improvements or General Fund needs. The remaining $2.5 million of collections will remain in the General Fund. Management expects to conclude fiscal 2011 with a General Fund balance of $4.5 million, or 13.6% of 2010 revenues. Combined with money in the working capital fund, projected reserves reflect a stronger $9 million, or 27.2% of revenues, on a GAAP basis. While preliminary projections for fiscal 2012 show a $3 million shortfall due to Local Government Fund cuts and expenditure increases, management has outlined a series of one-time and recurring expenditure reductions which are expected to bridge the budget gap.

MANAGEABLE DEBT PROFILE WITH LIMITED FUTURE CAPITAL NEEDS

The city's debt profile will likely remain manageable despite an above average overall debt burden at 5.9% of full value, due to limited future borrowing plans. The city's direct debt level, net of self-supporting utility revenue debt, is a more affordable 1.6% of full value. Principal amortization is above average with 75.4% of general obligation debt repaid in ten years. The city designates 10% of its 2% income tax for capital improvements and debt retirement and supports debt service on a significant portion of general obligation with this revenue source. All of the city's existing long-term debt is fixed rate, and the city is not a party to any interest rate swaps.

WHAT COULD CHANGE THE RATING - UP

-Significant expansion of the city's tax base and/or strengthening of demographic profile

-Material increases in General Fund reserves

WHAT COULD CHANGE THE RATING - DOWN

-Weakening of the city's tax base and/or demographic profile

-Material declines in General Fund financial reserves and/or economically sensitive revenues

KEY STATISTICS:

2000 Population: 60,690 (2.9% increase from 1990)

2008 Estimated population: 62,477 (2.9% increase from 2000)

2011 Full valuation: $2.6 billion (1.5% average annual decrease since 2006)

Full value per capita (estimate): $41,019

Per capita income as % of US: 81%

Median family income as % of US: 83.8%

City unemployment rate (June 2010): 10.5%

FY2010 General Fund balance: $5.3 million (15.5% of General Fund revenues)

Debt burden (direct debt): 5.9% (1.6%)

Principal retirement (10 years): 75.4%

General Obligation long-term debt outstanding: $36.6 million

General Obligation bond anticipation notes outstanding: $5.9 million

The principal methodologies used in this rating were General Obligation Bonds Issued by U.S. Local Governments published in October 2009 and Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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 rating are the following: parties involved in the ratings, parties not 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

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

Henrietta Chang
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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

MOODY'S ASSIGNS Aa3 RATING TO THE CITY OF HAMILTON'S (OH) $23.3 MILLION GOLT VARIOUS PURPOSE BONDS, SERIES 2011 AND MIG 1 RATING TO $5.9 MILLION GOLT BOND ANTICIPATION NOTES; OUTLOOK REMAINS STABLE
No Related Data.
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