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New Issue:

MOODY'S ASSIGNS Aaa RATING TO THE CITY OF NAPERVILLE'S (IL) $19.0 MILLION GO BONDS, SERIES 2011

26 Jun 2011

Aaa RATING APPLIES TO $188.6 MILLION OF GO DEBT, INCLUDING THE CURRENT ISSUE

Municipality
IL

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2011

Aaa

  Sale Amount

$19,000,000

  Expected Sale Date

06/28/11

  Rating Description

General Obligation Unlimited Tax

 

Opinion

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 debt levels.

STRENGTHS

*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 declines

CHALLENGES

*Recent declines in property valuation, a trend which should continue in the near term

*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 BUDGETARY FLEXIBILITY

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 derivative agreements.

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 Aaa rating

KEY STATISTICS

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

PRINCIPAL METHODOLOGY

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, 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.

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

Rachel Cortez
Analyst
Public Finance Group
Moody's Investors Service

Genevieve Nolan
Backup Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Senior Credit Officer
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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MOODY'S ASSIGNS Aaa RATING TO THE CITY OF NAPERVILLE'S (IL) $19.0 MILLION GO 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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