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MOODY'S ASSIGNS Aa3 UNDERLYING RATING TO THE CITY OF HOPEWELL'S (VA) $5.4M GENERAL OBLIGATION PUBLIC IMPROVEMENT AND REFUNDING BONDS, SERIES 2011

27 May 2011

Aa3 RATING APPLIES TO $49.8M IN OUTSTANDING GENERAL OBLIGATION DEBT, INCLUDING CURRENT ISSUE

Hopewell (City of) VA
Municipality
VA

Moody's Rating

ISSUE

RATING

General Obligation Public Improvement and Refunding Bonds, Series 2011

Aa3

  Sale Amount

$5,400,000

  Expected Sale Date

06/02/11

  Rating Description

General Obligation Public Improvement and Refunding Bonds, Series 2011

 

Opinion

NEW YORK, May 27, 2011 -- Moody's Investors Service has assigned a Aa3 rating to the City of Hopewell's (VA) $5.4 million General Obligation Public Improvement and Refunding Bonds, Series 2011. Concurrently, Moody's has affirmed the city's outstanding Aa3 rating affecting approximately $49.8 million of post-refunding general obligation bonds.

RATINGS RATIONALE

The bonds are secured by the city's General Obligation pledge. The Aa3 rating incorporates the city's moderately-sized tax base, below-average socio-economic profile, healthy financial position, and above-average debt profile. The proceeds from this bond issue will be used to refund $1.6 million of the Series 1999 bond issue for a net present value savings of $85,000 or 5.6% of the refunded principal without an extension of maturity and to refund $800,000 of the Series 2002A for a net present value savings of $25,700 or 3.4% of the refunded principal with 5-year extension of maturity. The remainder of the proceeds ($2.7M) will be used to fund renovations at a local high school.

STRENGTHS

- Moderately-sized tax base

- Strong reserve levels

CHALLENGES

- Above-average debt burden

- Below-average socio-economic profile

INDUSTRIAL CITY WITH HIGH TAX BASE CONCENTRATION

Moody's anticipates that the city's $2 billion tax base will continue to remain vulnerable to the business cycles of local industry given an above-average concentration in the tax base. While the city has made effort to diversify its historically industrial tax base, particularly through the expansion of Fort Lee, electricity generation and manufacturing continue to dominate the tax base with Hopewell Cogentric (not rated), Dominion Virginia Power (not rated), Allied Signal Corporation (Honeywell Corporation senior unsecured debt rated A2/stable outlook), and Stone Container Corporation (unrated) representing the top four taxpayers and collectively comprising 17.5% of assessed values. Overall, while assessed valuations have slowed due to the economic environment, but still continued to increase by 1.8% in fiscal 2010 and are expected to remain level going forward. Development within the city is also expected to continue with a $39 million expansion at Ashland, Inc. and a $50 million equipment upgrade at Stone Container. While construction was completed and production was scheduled to begin later this year at the Osage ethanol plant, Osage officials recently announced the sale of the company, and as a result production will not commence at the Hopewell plant. The plant was projected to produce an additional $2 million in tax revenues, but was not captured in the city's budget.

Conveniently located just 25 miles from Richmond, VA (G.O. rated Aa2/stable outlook) and accessible by Interstate 295, the city has seen some development as a result of the base realignment of several military functions at Fort Lee. While this realignment is expected to be completed within the year, the expansion has resulted in an additional 150 households, 7 million square feet of office space, as well as several hotels. Unemployment levels, which have exceeded statewide rates for the last decade, remained high at 10.4% in March 2011, versus 6.3% and 9.2% for Virginia and the U.S., respectively. Resident income levels continue to lag commonwealth and national medians but, the considerable industrial presence improves the full value per capita to an average $87,290.

RESERVE LEVELS REMAIN STRONG DESPITE SLIGHT DECREASE IN FUND BALANCE IN RECENT YEARS

With adherence to conservative budgeting and fiscal management policies, Moody's expects Hopewell to maintain a satisfactory financial reserve position, despite the current economic environment. Following a modest draw on reserves in fiscal 2008 and fiscal 2009, the city recorded a $745,000 million surplus in fiscal 2010, increasing General Fund balance to $11.3 million, a sound 25.6% of General Fund revenues, well exceeding the city's 10% policy minimum. This operating surplus was the result of a three cent (per $100 in valuation) tax increase, as well as multiple expenditures cuts, including a wage freeze and personnel reductions. The city has approved an additional three cent tax increase in 2012 and 2014 to support increasing debt service over the coming years. Notably, the city also maintained $11.5 million in Capital Fund reserves that are available for General Fund operations, providing the city additional financial flexibility. With the incorporation of the Capital Fund reserves, the city's General Fund balance increases to $21.7 million or a strong 49.2% of General Fund revenues.

Preliminary fiscal 2011 results project a $1.3 million operating surplus, increasing General Fund balance to $12 million, or a still-sound 28.2% of General Fund revenues. While there was not a tax rate increase in fiscal 2011, economically-sensitive revenues, such as meal and sales tax, have been performing better than budgeted. In addition, the city continued with personnel cuts and the wage freeze, but was able to provide an employee bonus (totaling $400,000 for all employees) due to positive financial performance. The city preliminary fiscal 2012 budget, which represents a 0.5% increase from fiscal 2011. While the budget doesn't include a tax rate increase, it will reflect changes to employee contributions related to pensions and OPEB, in favor of the district. Moving forward, Moody's expects the city's effective fiscal management will sustain a stable financial position with healthy reserve levels.

ABOVE-AVERAGE DEBT BURDEN

Moody's expects the city's debt burden to remain above-average, but manageable going forward despite additional borrowing plans and below-average amortization. The city's overall debt burden is a moderate 2.8% of full valuation with a payout of 52.8% of amortized principal paid within ten years. Additional near-term borrowing plans include funds to finance upgrades to the city's Public Safety building, as well as the marina. The city's debt portfolio consists entirely of fixed-rate obligations and the city has no exposure to derivative products.

WHAT COULD MAKE THE RATING GO UP:

- Continued increase in reserve levels

- Improved socio-economic profile

WHAT COULD MAKE THE RATING GO DOWN:

-Depletion of reserved below historical levels

- Increased debt burden

KEY STATISTICS

2010 Population: 22,591 (+1.1% since 2000 census)

2010 Full Valuation: $2.0 billion

2010 Full Value Per Capita: $87,290

Per Capita Income: $16,339 (68.2% of VA; 75.7% of U.S.)

Median Family Income: $38,043 (70.2% of VA; 76.0% of U.S.)

2010 General Fund balance: $11.3 million (25.6% of General Fund revenues)

2010 Undesignated General Fund balance: $7.6 million (17.1% of General Fund revenues)

Direct debt burden: 2.8%

Amortization of principal (10 years) 52.8%

Post-Sale G.O. Debt Outstanding: $49.8 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 and public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation 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


Moody's Investors Service
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MOODY'S ASSIGNS Aa3 UNDERLYING RATING TO THE CITY OF HOPEWELL'S (VA) $5.4M GENERAL OBLIGATION PUBLIC IMPROVEMENT AND REFUNDING BONDS, SERIES 2011
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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