Aa3 RATING AFFECTS $37.4 MILLION IN OUTSTANDING PARITY DEBT, INCLUSIVE OF CURRENT SALE
General Obligation Refunding Bonds, Series 2011
Expected Sale Date
General Obligation Limited Tax
NEW YORK, Aug 16, 2011 -- Moody's Investors Service has assigned an Aa3 underlying rating to the Town of
Prosper's (TX) $2.35 million General Obligation Refunding Bonds, Series 2011.
Concurrently, we have affirmed the town's Aa3 general obligation debt rating,
affecting $37.4 million in outstanding parity debt. The rating also takes into
account an additional $790 thousand in outstanding parity debt not rated by
Moody's. Proceeds from the current issue will refund certain maturities of the
district's outstanding Series 1996, 1998, and 2001 bonds for a net present value
of approximately 7.2% and no extension of final maturity.
SUMMARY RATING RATIONALE
The bonds are secured by a direct and continued ad valorem tax levied, within
the limits prescribed by law, on all taxable property within the town. The Aa3
rating reflects the town's continued yet reduced growth in tax base, strong
socioeconomic profile, and ample financial reserves. The elevated debt burden,
driven by rapid population growth, is also factored into the Aa3 rating.
* Stable financial position with healthy reserve levels
* Expansion of moderately sized tax base
* Elevated debt burden
DETAILED CREDIT DISCUSSION
TAX BASE EXPANSION CONTINUES AT REDUCED PACE
The Town of Prosper spans 27 square miles in the northwest corner of
Collin County (General Obligation rated Aaa) and extending into Denton
County (Aaa). Favorably located 35 miles north of downtown Dallas (Aa1), the
town has rapidly developed as a residential community. The tax base has
experienced a notable 23% average annual growth rate over the past five years,
reaching $1.1 billion in fiscal 2011. Officials report preliminary fiscal 2012
values will increase a more moderate 5.1% that is largely attributable to new
construction and annexation. Resident wealth levels are strong, as measured by
per capita income and median family income (from 2000 U.S. Census) that
approximate 130.9% and 149.5% of the state levels, respectively. The June 2011
unemployment rate of 8.0% was below the state (8.8%) and the U.S. (9.3%) for the
same time period. With an estimated 80% of the town's land remaining available
for development coupled with the beneficial proximity to the Dallas employment
base, we believe the tax base will continue to experience long-term growth.
Near-to-medium term growth is expected, but at a reduced rate when compared
to the historical average.
CONSERVATIVE FISCAL MANAGEMENT; OPERATING SURPLUS TREND
Conservative budgeting has allowed the town to consistently post
annual operating surpluses. Fiscal 2010 results yielded a $574 thousand
operating surplus and General Fund reserves of $4.97 million (56.9% of
revenues). Transfers into the General Fund increased significantly for fiscal
2010, due in large part to transfers from the Capital Projects Fund for capital
outlay. General Fund operations, excluding all transfers into the General Fund
and related capital outlay, produced similar reserves of 74% (as a % of General
Fund revenues). Fiscal 2010 General Fund revenues were largely derived from
property taxes (38.3%), sales tax collections (15%), fees and permits
(7.7%), and franchise fees (4.6%). Management anticipates an operating surplus
of approximately $100k for fiscal 2011, increasing General Fund reserves to
$5.07 million or an ample 67.8% of budgeted General Fund revenues at year's end
(September 30). Management has proposed a balanced budget for fiscal 2012. Town
officials report an increase of charter-required financial reserves to 20% of
operating expenditures from 10% of operating expenditures. Additionally, Town
Council has an informal policy of an additional 25% operating cost floor for the
General Fund balance. Given management's plans to continue growing General Fund
reserves in line with budgetary expansion, we believe the town's financial
operations will remain solid over the medium term.
DEBT PROFILE EXPECTED TO REMAIN HIGH
Inclusive of the current sale, the town's debt burdens are above average at 3.4%
direct and 17.6% overall, both expressed as a percentage of fiscal 2011 assessed
valuation. Approximately 35% of outstanding general obligation debt was
issued to finance water and sewer related capital improvements;
management reports net revenues of the water and sewer system will continue to
cover 100% of utility-related debt service requirements. Excluding
utility-supported debt, the debt burdens remain elevated but are reduced to 2.2%
direct and 16.4% overall. The significantly higher overall debt burden is
largely attributable to debt issued by the local school district, Prosper ISD
(A1), to accommodate rapid enrollment growth. The town has no exposure to
variable rate debt or interest rate derivatives. Amortization is average with
61.3% of principal retired in ten years. The town has approximately $25 million
in recently authorized but unissued debt. Officials indicate plans to issue
limited amounts of the authorized debt in the immediate term. We believe the
town's debt profile will remain high over the long term given plans for
additional debt issuance; however, significant pressure on debt burdens is
expected to be mitigated by continued tax base expansion.
WHAT COULD MAKE THE RATING GO UP:
*Substantial tax base expansion coupled with maintenance of
healthy socioeconomic profile
*Trend of surplus financial operations, growing reserves in line with budgetary
WHAT COULD MAKE THE RATING GO DOWN:
*Additional debt issuance absent continued tax base expansion, resulting in
increased debt burdens
*Depletion of financial reserves, whether it be for general operations or
Estimated 2011 Population: 10,700
FY 2011 Full Value: $1.1 billion
Full Value per Capita: $107,232
Per Capita Income (2000 Census): $25,652 (130.9% of state; 118.9% of U.S.)
Median Family Income (2000 Census): $68,542 (149.5% of state; 137.0% of U.S.)
Direct Debt Burden (net of utility-supported debt): 2.2%
Overall Debt Burden (net of utility-supported debt): 16.4%
Payout of Principal (10 years): 61.3%
FY 2010 General Fund Balance: $4.9 million (56.9% of General Fund revenues)
Post-sale Parity Debt Outstanding: $38.2 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.
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MOODY'S ASSIGNS Aa3 UNDERLYING RATING TO THE TOWN OF PROSPER'S (TX) $2.35 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011
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