Aaa RATING APPLIES TO $188.6 MILLION OF GO DEBT, INCLUDING THE CURRENT ISSUE
General Obligation Bonds, Series 2011
Expected Sale Date
General Obligation Unlimited Tax
NEW YORK, Jun 26, 2011 -- Moody's Investors Service has assigned a Aaa rating to the City of
Naperville's (IL) $19.0 million General Obligation Bonds, Series 2011.
Concurrently, we have affirmed the Aaa rating on the city's outstanding general
obligation unlimited tax (GOULT) debt. The City of Naperville has $188.6 million
of total GOULT debt, including the current issue.
SUMMARY RATING RATIONALE
Debt service on the current offering is secured by the city's GOULT
pledge. Proceeds of the Series 2011 bonds will fund various capital
improvements. Assignment of the Aaa rating reflects Naperville's integral role
in the Chicago (general obligation rated Aa3/stable outlook) regional
economy; substantial tax base supported by a diverse commercial sector and an
affluent residential base; well-managed financial operations; considerable
budgetary flexibility provided by the city's home rule status; and manageable
*Large and diverse tax base plays a key role in the Chicago regional economy
*Affluent residential base and relatively low unemployment levels
*Significant financial flexibility afforded by the city's home rule status
*Recent stabilization of sales tax revenue trends following three years of
*Recent declines in property valuation, a trend which should continue in the
*Narrow cash levels in the city's water and wastewater utility fund
*Underfunded status of police and firefighter pension plans (67% and 68% funded
ratios, respectively, as of April 30, 2010)
DETAILED CREDIT DISCUSSION
SUBSTANTIAL TAX BASE SUPPORTED BY DIVERSE COMMERCIAL SECTOR AND
AFFLUENT RESIDENTIAL BASE; INTEGRAL ROLE IN CHICAGO REGIONAL ECONOMY
Despite declines in valuation, we believe Naperville's tax base will remain
healthy over the long term due to the city's proximity to highway and rail
transportation and its important role in the Chicago metropolitan area economy.
Located 28 miles southwest of Chicago in DuPage County (general obligation Aaa),
Naperville's tax base is primarily residential but also boasts a diverse
commercial sector. Edward Hospital is the city's top employer with more than
4,300 employees. Several large governmental research facilities
(Argonne National Laboratory and the Fermi Lab) complement a corporate
research presence within the city. Nicor Gas Company and Lucent
Technologies (senior unsecured B1/stable outlook) are the city's second and
third largest employers with 3,700 and 3,600 employees, respectively. Lucent's
employment levels are much lower than its peak of 12,000 employees a decade ago.
The corporate headquarters of OfficeMax (senior unsecured B1/negative outlook),
and the global headquarters of Tellabs are also represented among Naperville's
ten largest employers.
The city's population increased by more than 500% during the past four decades
(from 22,617 residents at the 1970 census to an estimated population of 141,853
in 2010). Residential development driven in large part by teardowns and new
construction combined with ongoing commercial development had brought strong
valuation growth averaging 8% annually between 2004 and 2008. Valuation growth
slowed to 1.3% in 2009, and in 2010, valuation dropped by 5.4%. Reflecting the
delayed effect of the broader recession, city officials expect valuation to
continue to decline for several years. Mitigating the impact of valuation
declines on the city's tax base is strong socio-economic profile, with resident
income levels well above state and national medians and unemployment rates that
continues to trend below those of the state and nation.
WELL-MANAGED FINANCIAL OPERATIONS; HOME RULE STATUS PROVIDES CONSIDERABLE
We believe the city's financial operations will remain sound due to
considerable revenue raising flexibility and management's implementation of cost
reductions to protect favorable fund balance levels. Between fiscals 2007 and
2010, the year end General Fund balance equaled between 21% and 22% of annual
revenues, evidencing a trend of very stable reserve levels. The General Fund net
cash position declined slightly over the same period (from 19% of revenues at
the close of fiscal 2007 to 16% at the close of fiscal 2010), but the
balance sheet remains healthy, particularly given the city's conservative debt
structure (as described below). Although audited financial statements are not
yet available, management reports that in fiscal 2011 (which ended April 30,
2011), the General Fund balance increased by $1.8 million to $22.7 million.
After years of growth, sales tax revenues (which represented 25% of General Fund
revenues in fiscal 2010) began to decline in fiscal 2008 at the onset of the
recession. Sales tax revenues dropped by 2% in fiscal 2008, 5% in fiscal 2009,
and 3% in fiscal 2010. In response, management cut 92 positions (45 of which
were filled) over a two year period in fiscals 2010 and 2011. Several alternate
revenue generators were also added or increased, including a refuse fee that
took effect in fiscal 2011. Management reports that sales tax revenues increased
by 8% in fiscal 2011. Flat sales tax revenue growth is budgeted for fiscal 2012.
Largely mitigating the potential effects of economically sensitive revenue
sources is the wide array of revenue raising options afforded by the city's
home rule status, including the unlimited ability to raise property
taxes, implement a local option sales tax, and increase utility rates, which the
city did effective June 1, 2011, through a 28% water rate increase to improve
the water enterprise fund's narrow unrestricted cash balance.
DEBT LEVELS EXPECTED TO REMAIN MANAGEABLE
We expect the city's debt profile will remain favorable given moderate future
borrowing plans and satisfactory amortization of outstanding debt. As a
percentage of full value, Naperville's direct and overall debt burdens (0.9% and
2.6%, respectively) are moderate relative to state and national medians. The
pace of payout of the city's debt is sound, with 64% of debt retired in ten
years. Based on the city's multi-year capital improvement plan, future general
obligation debt is projected to total $65.7 million through 2016, which includes
$24.1 million next year. All of the city's outstanding debt is fixed rate
and amortizes over the long term. The city is not a party to any
What could change the rating - DOWN:
-Severe deterioration of the city's commercial and/or residential base
-Weakening of socioeconomic indicators
-Declines in liquidity and/or fund balances to levels not commensurate with the
2010 estimated population: 141,853 (10.5% increase from 2000)
2010 estimated full valuation: $20.2 billion
2010 estimated full value per capita: $142,092
1999 per capita income as % of US: 165%
1999 median family income as % of US: 203%
2000 median home value as % of US: 213%
April 2011 city unemployment rate: 6.1%
Fiscal 2010 General Fund balance: $20.9 million (21% of revenues)
Fiscal 2011 General Fund balance: $22.7 million (unaudited)
Direct debt burden: 0.9%
Overall debt burden: 2.6%
Principal payout (10 years): 64%
Post-sale GOULT debt outstanding: $188.6 million
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
information, confidential and proprietary Moody's Investors Service information,
and confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
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MOODY'S ASSIGNS Aaa RATING TO THE CITY OF NAPERVILLE'S (IL) $19.0 MILLION GO BONDS, SERIES 2011
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