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MOODY'S ASSIGNS MIG 1 RATING TO LOWER TOWNSHIP MUNICIPAL UTILITIES AUTHORITY'S (NJ) $12.3 MILLION PROJECT NOTE, SERIES 2011B

12 Sep 2011

AFFIRMS A1 RATINGS ON $16.2 MILLION OF LONG-TERM G.O. DEBT OUTSTANDING OF THE TOWNSHIP

Water/Sewer
NJ

Moody's Rating

ISSUE

RATING

Project Note (Series 2011 B)

MIG 1

  Sale Amount

$12,250,000

  Expected Sale Date

09/23/11

  Rating Description

Bond Anticipation Note

 

Opinion

NEW YORK, Sep 12, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the Lower Township Municipal Utilities Authority's (NJ) $12.3 million Project Note (Series 2011B). Proceeds will renew the Authority's outstanding $6 million Project Note (Series 2010B) and finance major water system expansion project within the township.

RATINGS RATIONALE

The note is ultimately secured by the Township of Lower's general obligation unlimited tax pledge via a service contract. The MIG 1 rating reflects the township's long-term credit quality and Authority's favorable history of market access, indicating its ability to refinance the note upon its September 2012 maturity.

Concurrently, Moody's has affirmed the A1 long-term rating on $16.2 million of outstanding rated general obligation debt of the township and the authority. The long-term rating reflects the township's stable financial position characterized by a pattern of replenishing fund balance appropriations while maintaining strong cash reserves, a large tax base marked by below-average socioeconomic indicators and low debt burden.

STRENGTHS

-Sizable tax base

-Conservative financial management practices

-Low debt burden

CHALLENGES

-Declining property tax values

-Revenue raising limitations from state-wide 2% levy cap

DETAILED CREDIT DISCUSSION

AUTHORITY DEBT ULTIMATELY BACKED BY TOWNSHIP

The Lower Township Municipal Utilities Authority provides water and sewer services to the Township of Lower. A service contract between the township and the authority obligates the 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.

MIG 1 RATING REFLECTS DEMONSTRATED HISTORY OF MARKET ACCESS

Moody's assignment of its MIG 1 rating to the note reflects a 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 strength of the township and the authority will allow for adequate market access to refund this note issue, if necessary, upon its September 2012 maturity.

SOUND FINANCIAL POSITION DESPITE MODEST 2010 RESERVE DECLINES DRIVEN BY STATE AID CUTS AND LOWER PROPERTY TAX RECEIPTS

Moody's believes the township's financial operations will remain stable despite near-term pressures related to declines in the local tax base stemming from the recent recession and increased future retiree payouts for accumulated absences. These negatives are offset by the township's track record of effective fiscal management, which included the creation of a reserve in fiscal 2010 for accumulated absences, adequate reserve levels and ample cash and investments ($5 million). Since 2006, the township's Current Fund balance, although demonstrating modest declines, has averaged 13.2% of revenues and ended fiscal 2010 with a $2.8 million balance equal to a solid 12.6% of Current Fund revenues.

After peaking at $3.1 million in 2007 (14.4% of revenues), Current Fund balance fell to roughly $2.9 million (12.7% of 2009 revenues) 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 as revenue (approximately $2 million) each year 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 $130,000 for 2006, 2008 and 2010,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 1% in 2010 as well as raising township fees and fines. The fiscal 2011 budget remains essentially flat over the prior year and is offset with approximately $1.9 million appropriated from fund balance. Given year-to-date results management expects to fully replenish the fund balance appropriation and maintain reserves at 2010 levels. 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 (6.6% of total revenues in fiscal 2010), 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 (80% 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. The township's strong liquidity ($5 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 $4.2 billion (compared to the $2 billion NJ state median) tax base will decline modestly given market depreciation. However, the township maintains good long-term growth potential stemming from the its 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 $184,591, 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 $16.2 million in direct debt and an additional $24.4 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 $4.2 billion tax base and an absence of additional debt issuance plans. The township's direct debt burden of 0.6% 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. 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.

OUTLOOK

What could move the rating up:

-Structurally balanced financial operations

-Stable reserve levels

What could move the rating down:

-Increased in deferred school tax levy

-Material decline in reserve levels

-Significant retraction of assessed valuation

KEY STATISTICS (Township of Lower):

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

Fiscal 2010 Total Full Value: $4.2 billion

Fiscal 2010 Full Value Per Capital : $184,5910

Overall Debt Burden: 0.8%

Direct Debt Burden: 0.6%

Payout of Principal (10 years): 100%

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

2010 Current Fund Balance: $2.8 million (12.6% 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: $40.6 million ($18 million rated)

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007. 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 adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Josellyn Yousef
Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
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.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS MIG 1 RATING TO LOWER TOWNSHIP MUNICIPAL UTILITIES AUTHORITY'S (NJ) $12.3 MILLION PROJECT NOTE, SERIES 2011B
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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