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MOODY'S ASSIGNS Aa3 TO MONTGOMERY COUNTY E.D.A'S (VA) $14.0M LEASE REVENUE REFUNDING BONDS, SERIES 2010

05 Nov 2010

Aa3 RATING AFFECTS APPROXIMATELY $123 MILLION OF POST-REFUNDING PARITY DEBT

Montgomery (County of) VA
County
VA

Moody's Rating

ISSUE

RATING

Public Facility Lease Revenue Refunding Bonds, Series 2010

Aa3

  Sale Amount

$14,000,000

  Expected Sale Date

11/02/10

  Rating Description

Lease Rental

 

Opinion

NEW YORK, Nov 5, 2010 -- Moody's Investors Service has assigned a Aa3 rating to the Economic Development Authority of Montgomery County, Virginia's $14 million Lease Revenue Bonds Series 2010. Concurrently, Moody's has affirmed the county's Aa2 general obligation rating, affecting approximately $16.4 million of outstanding debt, and has affirmed the Aa3 rating on approximately $123 million of post-refunding parity debt.

RATINGS RATIONALE

The bonds are secured by lease rental payments made by Montgomery County that are subject to annual appropriation. Assignment of the Aa3 rating represents the sound long-term credit strength of the county, satisfactory legal provisions under the lease and indenture and the essentiality of the new school used as collateral. The refunding is expected to yield net present value savings of approximately 7.65% of refunded principal. Savings are distributed evenly over the life of the bonds and there is no extension of the final maturity. Affirmation of the Aa2 G.O. rating reflects the moderately-sized tax base anchored by Virginia Polytechnic Institute and State University, satisfactory financial position, socioeconomic profile, and manageable debt burden.

LEASE SUBJECT TO ANNUAL APPROPRIATION; LEASEHOLD INTEREST IN SCHOOLS AND COURTHOUSE PROJECT PLEDGED

Montgomery County has entered a lease with the Economic Development Authority of Montgomery County (EDA) under which the County makes rental payments directly to a trustee 10 days prior to debt service due dates, subject to annual appropriation. The county has pledged a leasehold interest in the Christiansburg Middle School as collateral for the 2010 bonds. Under the Financing Lease, the county has covenanted to include debt service payments in its annual budget proposals. Moody's believes the risk of non-appropriation is lessened by the essentiality of the pledged assets. Additional security is derived from a debt service reserve equal to the least of maximum annual debt service, 10% of par value or 125% of average annual debt service and will be funded from bond proceeds at closing.

DIVERSIFICATION CONTINUES IN TAX BASE ANCHORED BY THE LARGEST STATE UNIVERSITY

Moody's expects Montgomery County's $7.7 billion economy to continue to derive stability from the presence of Virginia Polytechnic Institute and State University (General Revenue Bonds rated Aa1/stable outlook) and benefit from ongoing diversification of the tax base. Located in southwestern Virginia (G.O. rated Aaa/stable outlook), the county encompasses nearly 400 square miles and includes the towns of Blacksburg (G.O. rated Aa2) and Christiansburg (G.O. rated Aa3). In recent years, aggressive economic development initiatives have helped to transform this historically rural economy into an increasingly diversified economic base including defense, electronics, and automotive component manufacturers. The University has been a primary catalyst for attracting new industries, with an extensive corporate research park that serves as the main location for a notable proportion of these new companies. The park currently holds 140 firms with an aggregate 2,000 employees, and is expected to be double its current size at buildout. Although most of the University-owned research center property is tax-exempt, growth in the park provides new revenue because building leases are taxable and the companies in the park pay other local taxes, including sales and business license taxes. Improving employment opportunities have contributed to the county's population growth, which has increased by approximately 43% since 1980. In response to this growing and more affluent population, the county's retail sector has also expanded with expansions and renovations to two malls, construction of a big box shopping center, as well as a $50 million retail project that added 335,000 square feet of retail space to the area.

On average, assessed values in the county have increased 7.8% annually over the past five years, driven by new development and significant market appreciation. Further, Moody's believes the presence of the university, with an enrollment of approximately 29,000 and employing 9,925, or 31% of county workers, provides overall stability. Of note, the large student population skews resident income levels downward, with per capita income at 71.2% of the commonwealth median. Full value per capita of $86,639 is also affected by the significant tax-exempt university presence.

STRONG FINANCIAL POSITION DRIVEN BY CONSERVATIVE MANAGEMENT

Sound financial management practices and a conservative budgeting approach should continue to support stable finances. The county has recorded surpluses in four of the last five fiscal years, with the only reduction in fiscal 2009 when expenditures increased by almost 10% (revenues increased 5%) from the previous year, mostly due to cost increases in public safety, health, and debt service. Fiscal 2008 resulted in the county's third consecutive surplus, with the county adding nearly $3.3 million to General Fund balance, primarily achieved through better-than-anticipated property tax revenues and $4.1 million of unspent education appropriations, which were rolled forward to 2009. Consequently, the county closed 2008 with $25 million in unreserved General Fund balance, or a strong 27.8% of revenues. While total General Fund balance was a stronger $32.5 million, or a very healthy 36.1% of revenues, this includes a $7.1 million reserve to offset a long-term receivable from the county's Industrial Development Authority. Given that the illiquidity of this receivable, Moody's views the county's unreserved portion of fund balance as the more accurate measure of financial cushion.

The county raised the property tax rate by 8 cents in 2009 and did not appropriate reserves to support operations. Although revenues related to permits and service charges trended below 2008 receipts, overall revenues outperform the previous fiscal year by over $4 million. Despite this revenue surplus and expenditures increasing by almost $10 million due to public safety and debt service costs, the county finished the year with an unreserved general fund balance that represented a modest 26% of revenues. At year-end, even with a slight deficit of $219,000 due to transfers out of the general fund into the capital improvement fund (valued at $94.9 million), Montgomery County retained a strong financial position and remained in compliance with its stated policy of maintaining undesignated General Fund balance between 8% and 10% of combined General Fund and School operating expenditures with $21.4 million or 13.9% categorized as undesignated, unreserved funds.

During fiscal 2010 the county realized almost a $2 million cash surplus. While revenues came in almost $800,000 under budget partly due to declines in personal property and sales taxes, the county was able to cut expenditures by $8.5 million by reducing personnel. Fiscal 2011 brings rising benefit costs, which has the county looking at various cost-saving options, as well as rising debt service cost.

MANAGEABLE DEBT PROFILE

Moody's expects Montgomery's 2.2% direct debt burden to remain manageable given a satisfactory rate of amortization of principal and adherence to formalized debt policies. When overlapping town obligations are included, the overall debt burden rises to an above-average 2.7% of full valuation. The debt service requirement is projected to increase to the county's cap of 12% of operating expenditures in 2011, but is expected to decrease in the following years. The additional cost is partially offset with a three cent property tax rate increase adopted in 2010. Post-issuance, principal amortization will be approximately 63% within 10 years.

The county's five-year capital spending plan totals $67.2 million. Currently, the county plans to use current debt proceeds, as well as pay-as-you-go financing to fund these capital projects. While it is not currently the intention of the county, Moody's notes that due to the collapse of the gym roof at Blacksburg High School, additional debt may have to be issued to fund the renovations. All of the county's outstanding debt is fixed rate and the county is not party to any derivative agreements.

WHAT COULD MAKE THE RATING GO UP:

-Improved financial position through increase in fund balance

-Continued increase in tax base

WHAT COULD MAKE THE RATING GO DOWN:

-Modest increase in debt burden

-Decrease in reserve funds

KEY STATISTICS

2009 Estimated population: 90,517 (+8.2% since 2000)

2009 Full valuation: $7.7 billion

2007 Full value per capita: $84,855

2000 Per capita income: $17,077 (71.2% of VA; 79.1% of U.S.)

2000 Median family income: $47,239 (87.2% of VA; 94.4% of U.S.)

Direct debt burden: 2.2%

Overall debt burden: 2.7%

Amortization of principal (10 years): 63%

FY09 Unreserved General Fund balance: $32.3 million (34.0% of General Fund revenues)

FY09 Undesignated General Fund balance: $21.4 million (22.5% of General Fund revenues)

Post-sale parity debt outstanding: $123 million

Long-term G.O. debt outstanding: $16.4 million

The principal methodology used in this rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and 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

Jennifer Rinaca
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
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


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MOODY'S ASSIGNS Aa3 TO MONTGOMERY COUNTY E.D.A'S (VA) $14.0M LEASE REVENUE REFUNDING BONDS, SERIES 2010
No Related Data.
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