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MOODY'S ASSIGNS Aaa RATING TO DENTON COUNTY'S (TX) $15.8 MILLION PERMANENT IMPROVEMENT REFUNDING BONDS, SERIES 2011

01 Aug 2011

RATING ASSIGNMENT AND AFFIRMATION AFFECTS $477.6 MILLION IN OUTSTANDING PARITY DEBT, INCLUSIVE OF THE CURRENT REFUNDING

County
TX

Moody's Rating

ISSUE

RATING

Permanent Improvement Refunding Bonds, Series 2011

Aaa

  Sale Amount

$15,815,000

  Expected Sale Date

08/01/11

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Aug 1, 2011 -- Moody's Investors Service has assigned a Aaa rating to Denton County's (TX) $15.8 million Permanent Improvement Refunding Bonds, Series 2011. In addition, we have affirmed the Aaa rating on the county's outstanding parity debt affecting $461.8 million net of the current refunding. Proceeds from the sale of the bonds will be used to refund the Series 2005 Certificates of Obligation, and the Series 2005 Permanent Improvement Bonds for an expected net present value savings of 5.2% and no extension of final maturity.

SUMMARY RATINGS RATIONALE

The bonds are secured by a continuing and direct annual ad valorem tax levied against all taxable property within the county within the limits prescribed by law. The rating reflects the county's sizable base located favorable between Dallas and Fort Worth, a history of satisfactory financial management that includes a moderate reduction in reserves over the past two years (including fiscal year 2011), a significant unfunded Other Post Employment Benefits (OPEB) liability, and overall manageable debt burdens.

STRENGHTS

Favorable location providing access to the cities of Dallas and Fort Worth

Sizable tax base; strong socioeconomic profile

WEAKNESSES

Recent moderate tax base contraction

Moderate reduction in reserves

DETAILED CREDIT DISCUSSION

ADVANTAGEOUS LOCATION BETWEEN TWO METROPOLITAN AREAS; HISTORICAL TAXABLE VALUE INCREASE DRIVEN BY LARGE POPULATION GROWTH

Denton County is advantageously located in the north triangular point between the cities of Dallas (Aa1/stable outlook) and Fort Worth (Aa1/stable outlook). Due to its favorable location, the county offers housing and educational facilities accessibly by most regions in the Dallas Fort Worth metropolitan area. The county is composed of local governments that range in size from the City of Denton (140,000 population) to small cities such as Argle (under 5,000). Population within the county has shown tremendously growth due to public and private investments that have increased entertainment, housing and retail activity in sections of the county. The 2000 population was 432,976, a 58.3% increase over the prior decade, as reported by the U.S. Census. Estimates for 2011 indicate subsequent substantial growth of 55.6% yielding a total of 673,780 residents. Wealth indicators within the county remain above the median with a 1999 per capita income of $26,895 which was 137.1% of the state, and 124.6% of the nation, and a 1999 median family income of $69,292 which was 151.1% of the state, and 138.5% of the nation. The May 2011 unemployment rate in the county was 7.1%, which was lower than the state's 7.9%, and the nation's 8.7% taken during the same time period. Moody's believes the county will continue to be a beneficiary of a strong regional economy and the availability of developable land within the boundaries.

Taxable values within the county have historically exhibited strong levels of growth. Prior to fiscal year 2010, taxable values grew an annual average of 9.7% between fiscal years 2004 and 2009. In fiscal year 2010, due to slowed construction throughout the county, taxable values increased a modest 1.4% yielding a total of $53.3 billion. The increase was despite an overall decline of $1 billion in reassessed values (largely commercial), the effect of which was moderated with a new construction value of $1.7 billion. In fiscal year 2011, taxable values declined a moderate 4% to $51.2 billion amidst slow construction (new construction value was $1.1 billion) and the continued correction of commercial values. In anticipation of fiscal year 2012, preliminary estimates from the appraisal district indicate stable to modest increase as new construction values are estimated to be flat from last year at $1.1 billion. Over the near term, officials expect taxable values will continue to stabilize with potential for substantial growth over the intermediate term with the opening of a major retail distribution center and a global petrochemical company that are expected to add to the local employment opportunities within the next year. Moody's believes the county's economy will continue to benefit from its favorable location within the metropolitan area.

Along with affordable land, the county continues to remain home to significant subsurface natural gas reserves, with increased development for the gas over the years. Currently, the county has approximately 2,500 producing wells, an increase of 900% from the 250 wells in 2000. As a result of this activity, the total mineral value increased to $1.9 billion in fiscal year 2010, from $195.6 million in fiscal year 2001. In fiscal year 2011, the values peaked at $2.4 billion as natural gas exploration continued to grow within the county. However, preliminary values for fiscal year 2012 indicate a significant decrease to $1.7 billion although the county's projections for fiscal year 2013 show an increase to $2.3 billion. The volatility of the values is not uncommon given the nature of the industry. However, Moody's notes that total oil, gas and mineral values accounted for a modest 4% of total taxable values in fiscal year 2011.

HEALTHY FINANCIAL OPERATIONS CONTINUE DESPITE A PLANNED DRAW FOR CAPITAL NEEDS IN THE UPCOMING YEAR; SIGNIFICANT BUT CURRENTLY MANAGEABLE UNFUNDED OPEB LIABILITY

Moody's believes the county has demonstrated a trend of healthy financial operations that have yielded a multiyear trend of operating surpluses despite modest overall draws in two of the past five years largely to fund capital needs. The county ended fiscal year 2009 with a surplus of $35,000 which resulted in a General Fund balance of $28.1 million (a favorable 24.6 of General Fund revenues). In fiscal year 2010, the county ended the year with a modest operating deficit of $344,000 which included a transfer out of $3.5 million to the Capital Replacement Fund. The Capital Replacement Fund has historically received transfers from the General Fund to fund minor capital project, thus reduce the overall borrowing for the county. The balance in that fund at the end of the year was $4.4 million. For fiscal year 2011, officials report the budget is tracking similar to original assumptions. However, it is expected that the General Fund balance at the end of the year will be reduced to $25 million (a still favorable 22% of fiscal year 2010 General Fund revenues) due to a $3 million transfer out to the Capital Replacement Fund. If the transfer is not made, General Fund operations are expected to yield a modest surplus of $274,000. For fiscal year 2012, although the county is still in the preliminary budget stages, officials expect a balanced budget with flat growth in the General Fund, and do not expect any future transfers out to the Capital Replacement Fund.

The county received majority of its revenues from three sources property taxes (77.1%), fees of office (10.1%) and intergovernmental (5.9%). Property taxes have grown steadily over the past few years in line with taxable value growth. In fiscal year 2011, the county levied a total of $2.74 per $1,000 of assessed values, which was an increase from the $2.50 levied in the prior year to offset the taxable value decline. Of the $2.74, $2.00 was allocated to maintenance and operations, while $0.74 was allocated to debt service. Despite the increase, the county remains well $8.00 per $1,000 of assessed values, which is the maximum allowed by law for all purposes. Going into the next fiscal year, officials indicate the current levy is sufficient to fund operations and debt service, and there are no plans for a tax rate increase.

The county participates in the statewide Texas County and District Retirement System (TXDRS) which is a multiple employer public retirement system. The county has historically made 100% of its annual pension cost and this practice is expected to continue over the long term. The county also offers Other Post Employment Benefits (OPEB). As of October 1, 2008, the most recent actuarial valuation date, the plan had a total liability of $39.4 million, all of which was completely unfunded. Currently, the county is on a pay as you go basis, although research is currently in the works to address the liability. The annual OPEB cost in fiscal year 2010 was $5.2 million and the county's contribution was $795,249.

SELF FUNDED HEALTH INSURANCE FUND PRESSURES GENERAL FUND

The county is self funded for health insurance with a third party administrator for the plan. The plan has a stop loss policy with coverage of $350,000 on an individual basis and no aggregate coverage. In four of the past five years, the Health Care Fund recorded deficits even though the overall funding for the plan has increased. In fiscal year 2010, the fund recorded a deficit of $1.3 million which will be subsidized by funding from the General Fund. For fiscal year 2011, insurance premiums were increased by 5% ($50) per employee per month. Officials expect this will be the case for fiscal year 2012 as well. Officials hope to continue to manage the expenditures and revenues in the fund to yield positive operating results over the intermediate term. Moody's will continue to incoproate the self insuancre fund intothe rating analysis to make sure operating reserves are consistent with a Aaa rating.

AFFORDABLE DEBT BURDENS, DESPITE FUTURE ISSUANCE PLANS

All of the county's debt is fixed rate and the county is not party to any derivative agreements. Including the current refunding, the county's debt burdens are manageable with a direct burden of 0.8% (6.7% overall). Payout is slow with 39.6% of principal retired in 10 years. Following the refunding, the county will have $330.7 million in authorized but unissued debt. The current debt plan includes selling between $100 million and $140 million in fiscal year 2012. Moody's expects the county's debt burdens will remain affordable over time despite planned issuances.

WHAT COULD MAKE THE RATING GO UP - N/A

WHAT COULD MAKE THE RATING GO DOWN

Continued financial pressured in the General Fund eroding reserve levels

Subsequent and significant taxable value loss

KEY STATISTICS:

2011 Full Valuation: $61.5 billion

2011 Taxable Valuation: $51.2 million

2011 Full Value Per Capita: $92,871

1999 Per Capita Income: $26,895 (124.6% of US)

Direct Debt Burden: 0.8%

Overall Debt Burden: 6.79%

Payout of Principal (10 years): 39.6%

2010 General Fund Balance: $27.7 million (24.5% of General Fund revenues)

Post-sale general obligation limited tax parity debt: $477.6 million

PRINCIPAL METHODOLOGY

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.

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 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

Adebola Kushimo
Analyst
Public Finance Group
Moody's Investors Service

Toby Cook
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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

MOODY'S ASSIGNS Aaa RATING TO DENTON COUNTY'S (TX) $15.8 MILLION PERMANENT IMPROVEMENT REFUNDING BONDS, SERIES 2011
No Related Data.
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