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MOODY'S ASSIGNS MIG 1 RATING TO CITY OF SPRINGBORO'S (OH) $2.5 MILLION BOND ANTICIPATION NOTES, SERIES 2010

13 Oct 2010

AFFIRMS Aa2 RATING ON $22.3 MILLION OF OUTSTANDING GOLT DEBT

Municipality
OH

Moody's Rating

ISSUE

RATING

Real Estate Acquisition Revenue Bond Anticipation Notes, Sixth (2010) Renewal

MIG 1

  Sale Amount

$2,500,000

  Expected Sale Date

10/14/10

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Oct 13, 2010 -- Moody's Investors Service has assigned a MIG 1 rating to the city of Springboro's (OH) $2.5 million Real Estate Acquisition Revenue Bond Anticipation Notes, Sixth (2010) Renewal. Concurrently, Moody's has affirmed the Aa2 rating on the city's $2.3 million of outstanding general obligation limited tax debt.

RATINGS RATIONALE

The notes are secured by a pledge of revenues from land sales and the city's 0.5% capital improvements income tax. Proceeds will retire the city's outstanding Bond Anticipation Notes, Series 2009 (Fifth Renewal), which mature on October 28, 2010 and originally financed the purchase of over 80 acres of land. An additional $200,000 of cash on hand from the sale of four acres of land will be used to retire the Series 2009 notes. The notes mature in one year and the MIG 1 rating is based on expected market access for the take out refinancing, a history of successful marketing of bonds and notes, sound coverage provided by the pledged income tax revenues, and the credit quality reflected in the city's Aa2 GOLT rating. Affirmation of the city's Aa2 long term rating reflects its diverse tax base located between Dayton (GO rated Aa2/stable outlook) and Cincinnati (rated Aa1/stable outlook) with above average income indices; well-managed financial operations supported by ample reserves; and above average but manageable debt levels with no future borrowing expected.

EXPECTED MARKET ACCESS FOR REFINANCING; SOUND COVERAGE LEVELS PROVIDED BY INCOME TAX REVENUES

The city has sold notes annually since 2005 and sold long-term debt six times since 2000, providing a solid history of market access. The city plans to roll the current issuance into another series of notes before it matures October 27, 2011 or pay down the notes with land sale proceeds should a sale occur. The city originally issued $4.2 million in notes for the purchase of 80 acres of land and the notes have been paid down as portions of the land have been sold. Currently, 35 acres remain unsold, and the city expects to ultimately pay off the notes through the sale of the remaining parcels. Many Ohio (Aa1/negative outlook) issuers keep a portion of their debt in notes in order to access more favorable short-term rates and to allow for flexibility to pay down principal upon annual renewal of the notes. City management is expected to make adequate provisions to address potential market disruptions at the time of the takeout financing, by planning to take out debt well in advance of final maturity and considering alternate back up plans if necessary.

While the city expects to retire the notes through land sale proceeds, the notes are also secured by a pledge of the city's 0.5% capital improvement income tax. The capital improvements income tax also secures three outstanding sewer and water issues, which have first and second liens, respectively, on the income tax revenues. The 0.5% capital improvement income tax generated $3.1 million in fiscal 2009. The sewer and water utilities relied on income tax funds to cover approximately $600,000 in debt service in fiscal 2009. Favorably, the city is pursuing a 60% rate increase for the water utility and a 45% rate increase for the sewer utility effective January 1, 2011. The rate increases have not yet been approved by city council, though they have been approved by the city finance committee and are expected to be supported by city council as well. Following implementation of the rate increases, the utilities would have minimal reliance on the capital improvements income tax fund for debt service. Annual debt service on the sewer and water revenue debt is approximately $1.9 million. Should the city need to use income tax revenues to meet all first and second lien debt service needs, we believe that sufficient revenues will remain to meet potential debt service if the notes are converted to long-term special obligation bonds. There are no plans to further leverage income tax revenues with additional future debt.

SUBURBAN TAX BASE LOCATED BETWEEN DAYTON AND CINCINNATI IN WARREN COUNTY

Located primarily in Warren County (rated Aa1) along Interstate 75, the city benefits from easy access to both Dayton and Cincinnati and has experienced rapid growth over the past 20 years though growth has moderated in recent years. The city's $1.4 billion tax base saw a large 10.6% decline in valuation in 2010 following Warren County's triennial update, primarily due to softening of residential home values. Population has increased rapidly in recent years, growing by 88% from 1990 to 2000 and estimated to have risen by another 45% since 2000. City officials report very little residential land remaining for development and expect the population at maturity to grow by another 5,000 residents. The city is positioned to see additional commercial growth as it looks to develop 175 acres zoned for industrial or office use and continues infill development in existing business parks. Recent commercial development has focused on aerospace and defense-related businesses, capitalizing on the presence of Wright Patterson Air Force Base (home to the majority of the Air Force's research and development activities) in the region. The city's tax increment financing (TIF) district near the Austin Road interchange on Interstate 75 currently has two aerospace-related businesses generating approximately $70,000 per year in tax increment revenues. Additionally, a developer recently purchased four acres in the TIF district for development of an aerospace and defense company, with the option to purchase additional acreage in the TIF district for expansion. Resident income levels exceed both state and national norms, with per capita and median family income at 145% and 157% of the nation, respectively. Though local employers remain relatively stable (Springboro School District is the largest employer, GO debt rated Aa3), the city is tied to a struggling Dayton regional economy. Warren County's unemployment levels have risen to levels above historical norms (8.7% in August 2010), though they still remain below the state's unemployment rate (9.7% during the same time period).

WELL-MANAGED FINANCIAL OPERATIONS SUPPORTED BY AMPLE RESERVES

Despite a 4% decline in income tax receipts, the city recorded its sixth consecutive operating surplus in fiscal 2009, increasing the General Fund balance to $6.2 million, or an ample 66.2% of General Fund revenues. For fiscal 2010, the city had originally budgeted an 8.0% decline in income tax receipts, though favorably year-to-date estimates show a 2.25% increase from 2009 collections. The city has reduced expenditures to offset potential revenue declines by delaying capital spending, implementing a hiring freeze, and reducing salary increases. Current estimates show a balanced to surplus budget for fiscal 2010 without the use of reserves. Income tax receipts account for the General Fund's largest revenue source (64.5% of fiscal 2009 revenues), followed by charges and services (12.7% of revenues). The city maintains a separate fund for the 0.5% income tax dedicated to capital improvements. While the city does not have a formal General Fund balance policy, management has a demonstrated history of maintaining solid reserve levels, and we expect the city's financial position will remain strong going forward. We note that the city's General Fund has been relied on to subsidize a municipally owned golf course with the subsidy increasing in recent years from a historic level of approximately $300,000 to nearly $1 million in fiscal 2009. Favorably, the city has changed management at the course and expects the course to be self-supporting operationally in fiscal 2010, though the General Fund will continue to cover debt service on outstanding golf course general obligation bonds (approximately $350,000 per year).

AFFORDABLE DEBT BURDEN; NO FUTURE BORROWING EXPECTED

The city's current debt levels are above average with overall debt at 5.0% of full value and direct debt at 2.3%, but are expected to remain manageable, due to the city's above average principal amortization. Debt is repaid rapidly with 79.7% of principal retired in 10 years. There are no immediate plans for new capital borrowing. All of the city's existing long-term debt is fixed rate, and the city is not a party to any interest rate swaps.

What could change the rating - UP

- Strengthening of tax base to levels consistent with higher rating categories

- Maintenance of current strong fund balances

What could change the rating - DOWN

- Material multi-year declines in fund balances and liquidity

- Deterioration of the city's tax base and demographic profile

KEY STATISTICS:

2000 Population: 12,308 (88% increase from 1990)

2008 Estimated population: 18,000 (45% increase from 2000)

2010 Full valuation: $1.4 billion (1.4% average annual increase since 2005)

Full value per capita (estimate): $76,088

Per capita income as % of US: 145%

Median family income as % of US: 157%

FY2009 General Fund balance: $6.4 million (66.2% of General Fund revenues)

Debt burden (direct debt): 5.0% (2.3%)

Principal retirement (10 years): 79.7%

Post-sale GOLT debt outstanding (including financing issued through the Montgomery County Transportation Improvement District): $29.3 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Springboro (City of) OH was Bond Anticipation Notes and Other Short-Term Capital Financings rating methodology published in May 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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.

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

Emily Robare
Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Backup Analyst
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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New York, NY 10007
USA

MOODY'S ASSIGNS MIG 1 RATING TO CITY OF SPRINGBORO'S (OH) $2.5 MILLION BOND ANTICIPATION NOTES, SERIES 2010
No Related Data.
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