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New Issue:

MOODY'S ASSIGNS Aa3 RATING TO TOWN OF ORONO'S (ME) $4.5 MILLION 2010 GENERAL OBLIGATION REFUNDING BONDS (FEDERALLY TAXABLE)

17 Nov 2010

Aa3 RATING APPLIES TO $20.2 MILLION OF LONG-TERM PARITY DEBT, INCLUDING CURRENT ISSUE

Municipality
ME

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds (Federally Taxable), Series 2010

Aa3

  Sale Amount

$4,530,000

  Expected Sale Date

11/18/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Nov 17, 2010 -- Moody's Investors Service has assigned a Aa3 rating to the Town of Orono's (ME) $4.5 million 2010 General Obligation Federally Taxable Refunding Bonds. Concurrently, we have affirmed the Aa3 rating on the town's $20.2 million of outstanding general obligation debt. Proceeds of the refunding bonds will be used to refund, on a current basis, the remaining $4.5 million due on the town's 2000 bonds. The refunding is expected to produce a net present value savings in excess of 22% of refunded principal, with no extension of final maturity.

RATINGS RATIONALE

Assignment of the Aa3 rating reflects the town's consistently healthy financial position and strong Undesignated General Fund balance, which is guided by a formal reserve policy. The Aa3 rating also incorporates the town's stable tax base, anchored by the University of Maine's flagship campus, and a manageable debt position.

FINANCIAL POSITION REMAINS SOUND

Orono's financial position remains healthy, supported by conservative budgeting practices and guided by a prudent fund balance policy. Over the last five fiscal years the town's Undesignated General Fund balance has remained in excess of 11.5% of revenues, comfortably above the town's 11% minimum as prescribed by its formal policy. Fiscal 2009 audited results indicate a $413,704 addition to general fund balance driven by greater-than-budgeted revenues. At year-end undesignated General Fund balance totaled $3.6 million, or a strong 20% of revenues. Of note, total fund balance represents a higher $8.0 million due to the designation of a $3.8 million note receivable, which is being paid back from lease revenues by a private corporation, L-3 Communications (rated Baa3/stable outlook), more below. Preliminary fiscal 2010 results indicate a drop in unreserved General Fund balance to approximately $3 million, remaining in excess of 20% of expenditures. Of note, the town's revenues and expenditures dropped in fiscal 2010 as education related expenses were transferred to the newly formed regional school district, RSU 26. Additionally, the portion of General Fund balance attributable to school operations was also transferred, which stood at $598,770 at the end of fiscal 2009.

The fiscal 2011 budget represents a minimal 0.4% increase over the prior year. The budget is balanced with a modest $52,000 reduction in the levy and a $370,000 undesignated fund balance appropriation, which is a $208,000 increase from the 2010 budget. The town anticipates drawing down fund balance over the next several fiscal years, with a floor of 15%. Looking ahead, the town's ability to maintain fund balance levels within targeted amounts and in line with the current rating category will be an important credit consideration. Outside of General Fund balance, the town's financial flexibility is enhanced by a $705,000 Reserve for Capital Equipment and additional levy capacity under LD 1, Maine's property tax levy limitation, of $637,952.

STABLE TAX BASE

Moody's believes that Orono's economy, located in eastern Maine just outside the City of Bangor (G.O. debt rated Aa2), will continue to be stable given its role as the home of the University of Maine's flagship campus. Over the last five fiscal years the town's full value has increased by a healthy 6.8% annually on average supported by ongoing market appreciation and new growth. The town's tax base does exhibit an above average degree of concentration with the top ten tax payers representing 20.6% of total assessed value, with the largest taxpayers consisting of rental and retirement housing developments, presenting heightened exposure to potential volatility in assessments. Positively, management reports that there are currently no significant tax appeals outstanding. Further, the university remains the town's largest employer (798 full or part-time faculty) and with over 9,400 students it is the primary contributor to the town's low per- capita income and heightened poverty rate. Looking ahead, the town anticipates future tax base growth from additional power generated by Black Bear Hydro, currently the town's fourth largest taxpayer (2.68% of AV) and proposed multi-unit residential housing developments.

MANAGEABLE DEBT PROFILE

Debt levels are expected to remain manageable given the town's limited future borrowing plans. At 2.5% of full value the town's net direct debt burden is above the 1.5% state median. However, when including the town's estimated $370 million of tax exempt property, the debt burden declines to 1.3%. Debt service represented a modest 5.8% of expenditures in 2009 and future debt plans include approximately $3 million for a public works facility. Further, the town's debt profile consists entirely of fixed rate borrowing.

Of note, in July of 2000, the town issued $7.8 million of General Obligation debt to finance the construction of an office facility that was leased to a private corporation and provide a $2 million loan to the same corporation. Following financial difficulties, the company provided with the loan, EnvisioNet, was acquired by Microdyne (a subsidiary of L-3 Communication), an information technology support company. Microdyne has assumed responsibility for EnvisioNet's lease obligations as they relate to the town and the debt remains self-supporting. The bonds are currently supported by lease payments from Microdyne. The lease is currently set to expire on October 31, 2011. The town anticipates being notified by the company by December 2010 if it plans to renew the lease. Looking ahead, should the debt cease to remain self supporting, the ability of the town to effectively manage the additional debt service costs, while maintaining a satisfactory financial position, would be an important factor in maintaining the town's long-term credit quality.

What could make the rating change - UP

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

What could make the rating change - DOWN

-- Depletion of General Fund balance

-- Deterioration of the town's tax base and demographic profile

KEY STATISTICS:

2008 Census Population (estimate): 9,670 (+6.1% since 2000)

2010 Full Value: $424 million

Average Annual Growth of Equalized Value (2005-2010): 6.8%

2010 Equalized Value Per Capita: $43,862

1999 Median Family Income: $52,714 (116.7% of state, 105.3% of nation)

1999 Per Capita Income: $14,813 (75.8% of state, 68.6% of nation)

2009 General Fund Balance: $8.5 million (46.5% of General Fund revenues)

2009 Unreserved Fund Balance: $2.8 million (20% of General Fund revenues)

Net Direct Debt Burden: 2.5 % of Full Value

Amortization of principal, including enterprise debt (10 years): 47.7%

Post-Closing General Obligation Long-Term Debt Outstanding: $20.2 million

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, parties not 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

Conor McEachern
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
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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MOODY'S ASSIGNS Aa3 RATING TO TOWN OF ORONO'S (ME) $4.5 MILLION 2010 GENERAL OBLIGATION REFUNDING BONDS (FEDERALLY TAXABLE)
No Related Data.
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