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MOODY'S ASSIGNS MIG 1 RATING TO LOWER TOWNSHIP MUNICIPAL UTILITIES AUTHORITY'S (NJ) $6.0 MILLION PROJECT NOTE, SERIES 2010B

15 Sep 2010

AFFIRMS A1 RATINGS ON $16.6 MILLION OF LONG-TERM G.O. DEBT OUTSTANDING OF THE TOWNSHIP AND AUTHORITY

Lower (Township of) NJ
Water/Sewer
NJ

Moody's Rating

ISSUE

RATING

Project Notes

MIG 1

  Sale Amount

$6,000,000

  Expected Sale Date

09/16/10

  Rating Description

Municipal Investment Grade 1 for a Project Note

 

Opinion

NEW YORK, Sep 15, 2010 -- Moody's Investors Service has assigned a MIG 1 rating to the Lower Township Municipal Utilities Authority's (NJ) $6.0 million Series 2010B Project Note (the note).

RATING RATIONALE

The note is ultimately secured by the Township of Lower's general obligation unlimited tax pledge. Concurrently, Moody's has affirmed the A1 long-term ratings on $12.6 million of rated general obligation debt outstanding of the township and the authority. The MIG 1 short-term rating reflects the township's stable financial position characterized by a pattern of replenishing its fund balance appropriations while maintaining strong cash reserves, a large tax base marked by below-average socioeconomic indicators and low debt burden. The rating also reflects the Municipal Utilities Authority's (the authority) favorable history of market access, indicating its ability to refinance the note upon its September 2011 maturity. The note is being issued to finance a major water system expansion project within the township.

MIG 1 RATING REFLECTS DEMONSTRATED HISTORY OF MARKET ACCESS

Moody's assignment of its MIG 1 rating to the note reflects its expectation of the authority's strong likelihood of market access at the note's maturity given the township's stable long-term credit profile and the authority's multi-year history of market access. The authority has demonstrated a consistent ability to access the capital markets in recent years, having successfully concluded several prior project note sales in 2007 through 2010 through private placements with a large regional bank. The authority last engaged in a public bidding process for a project note in 2006, which was also successful. Moody's believes the underlying credit strengths off the township and the authority will allow for adequate market access to refund this note issue, if necessary, upon its September 2011 maturity.

AUTHORITY DEBT ULTIMATELY BACKED BY TOWNSHIP

The Lower Township Municipal Utilities Authority provides water and sewer services to the Township of Lower. As is the case with many other New Jersey municipal utility authorities, a service contract between the township and the authority obligates Lower Township to cure any payment deficiencies incurred by the authority, thereby providing the basis for Moody's utilizing the township's general obligation bond rating as an input in rating the current note issue. Per the service contract, if authority revenues are insufficient to meet covenants in any fiscal year ending December 31, the township is obligated to make up said deficiency by the following January 16.

The service contract also provides for annual charges to be made to the township in the event of a projected revenue deficiency on the part of the authority. Should the authority anticipate a funding shortfall, it notifies the township for assistance by the fifteenth day of the month, with quarterly payments due to the authority on the first days of February, May, August and November. Per this schedule the authority would receive half of any annual charges by May 1 and three quarters of all charges ahead of the Note's September 23 maturity date. As clarified under the additional documentation for this issue, the township is obligated to levy ad valorem taxes, without limitation as to rate or amount, upon all taxable real property in the township to pay annual charges of the authority if other sources of funds are not available.

The following information pertains to Lower Township, NJ:

STABLE FINANCIAL POSITION DESPITE MODEST PROJECTED DECLINES DRIVEN BY STATE AID CUTS AND LOWER PROPERTY TAX RECEIPTS

Moody's believes the township's financial operations will remain stable despite several near-term pressures related to cuts in state aid and declines in the local tax base stemming from the recent recession. These negatives are offset by the township's track record of effective fiscal management, adequate reserve levels and ample cash and investments ($5.2 million). Since 2006, the township's Current Fund balance has averaged 13.4% of revenues and ended fiscal 2009 with a $2.94 million balance equal to an solid 12.7% of Current Fund revenues that roughly equals the 12.9% median level for New Jersey municipalities.

After peaking at $3.1 million in 2007, Current Fund balance fell to roughly $2.9 million for the two succeeding years due largely to declines in property tax receipts and state aid. The township has appropriated a relatively constant amount of fund balance ($2 million) each year to offset potential revenue shortfalls and has been able to replenish the full amount of the appropriations in two out of the past five years (fiscal 2007 and 2009). The township posted small operating deficits in the remaining three years of $203,000, $198,000 and $230,000 for 2006, 2008 and 2010 (projected), respectively, with the last driven largely by an unanticipated $393,000 cut in state aid during fiscal 2010. To offset pressure on revenues, the township raised its property tax levy by 5.1% in 2009 and is planning to raise township fees and fines for fiscal 2011. Township officials will consider further increases, if needed, to replenish Current Fund appropriations and achieve structural balance.

The township is not especially dependent on state aid revenues (8% of total revenues in fiscal 2009), which will limit budgetary pressures arising from additional cuts in state aid in fiscal 2011 and beyond. The township's largest single revenue source is local property taxes (77% of revenues), adding a very high measure of predictability to its financial operations. Other credit positives include the township's decision not to defer its pension contributions in 2009 and 2010. The township's strong liquidity ($5.2 million in cash) provides additional financial flexibility.

LARGE TAX BASE WITH BELOW AVERAGE WEALTH LEVELS AND STRONG SEASONAL TOURISM COMPONENT

Moody's believes Lower Township's sizable $4.1 billion (compared to the $1.95 billion NJ state median) tax base will remain stable given a low level of market depreciation and good long-term growth potential stemming from the township's still-sizable portion of land available for development. Located in the southeast corner of Cape May County (G.O. rated Aa1), approximately 40 miles southeast of Philadelphia (G.O. rated A1) the largely maritime and beachfront community supports wealth levels that are below average for the state including a per capita income of $19,786 (73.3% of the state median) and median family income of $45,058 (68.9% of the state median). Full value per capita is strong, however, at $212,210 due to a large number of second and vacation homes in the township. The local economy contains a strong commercial fishing component and food processing component, as well as high levels of seasonal tourism during the summer months. The township has low taxpayer concentration, with the top ten taxpayers accounting for 1.8% of the total assessed value, indicating a high level of stability in the underlying tax base.

SMALL DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

Moody's expects the township's small overall debt burden, consisting of $19.8 million in direct debt and an additional $16.6 million in self-supporting authority debt (not including the $6 million Project Note issue), will remain manageable given the modest size of the total debt burden compared to the township's $4.1 billion tax base and an absence of additional debt issuance plans. The township's direct debt burden of 0.5% of full valuation is below the 0.7% state median, making the township among the least indebted New Jersey municipalities. The authority anticipates refunding the Note annually over the next several years while adding to principal before taking the Note out with long-term debt, the approach it has utilized with its prior 2006 Project Note, of which $1.625 million remains outstanding. In addition to using its own cash, the authority expects to receive a U.S. Department of Agriculture low-interest loan to fund part of the cost of retiring the Note. Neither the authority nor the township has exposure to variable rate debt or any derivative agreements.

KEY STATISTICS (Township of Lower):

2008 Population: 20,328 (-11.4% since 2000 census)

Fiscal 2009 Total Full Value: $4.3 billion

Fiscal 2009 Full Value Per Capital : $212,210

Overall Debt Burden: 0.7%

Direct Debt Burden: 0.5%

Payout of Principal (10 years): 100%

2008 Current Fund Balance: $2.89 million (13.2% of Current Fund revenues)

2009 Current Fund Balance: $2.94 million (12.7% of Current Fund revenues)

1999 Per Capita Income (as % of NJ and US): (73.3% and 91.7%)

1999 Median Family Income (as % of NJ and US): (68.9% and 90.0%)

Post-sale Parity Debt Outstanding: $42.4 million ($18 million rated)

PRINCIPAL METHODOLOGY

The principal methodology used in rating Lower (Township of) NJ 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.

LAST RATING ACTION

The last rating action with respect to the authority was on February 13, 2003, when Moody's assigned a rating of A3 to Lower Township Municipal Utilities Authority's (NJ) Series 2003A and 2003B revenue bonds. The last rating action with respect to the township was on March 28, 2004 when Moody's assigned a rating of A3 to the township's Series 2004 long-term general obligation bonds. The ratings were subsequently recalibrated to A1 on April 23, 2010.

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, and confidential and proprietary Moody's Investors Service's 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

Michael D'Arcy
Analyst
Public Finance Group
Moody's Investors Service

Josellyn Yousef
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS MIG 1 RATING TO LOWER TOWNSHIP MUNICIPAL UTILITIES AUTHORITY'S (NJ) $6.0 MILLION PROJECT NOTE, SERIES 2010B
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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