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MOODY'S ASSIGNS MIG 1 RATING TO THE CITY OF MIAMISBURG'S (OH) $4 MILLION SPECIAL OBLIGATION REVENUE NOTES, SERIES 2011

02 Aug 2011

Aa2 RATING AFFIRMED ON $6.3 MILLION OF OUTSTANDING GOLT DEBT

Municipality
OH

Moody's Rating

ISSUE

RATING

Special Obligation Revenue Notes

MIG 1

  Sale Amount

$4,000,000

  Expected Sale Date

08/03/11

  Rating Description

Revenue Anticipation Notes

 

Opinion

NEW YORK, Aug 2, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the City of Miamisburg's (OH) $4 million Special Obligation Revenue Notes, Series 2011. Concurrently, Moody's has affirmed the Aa2 rating on the city's $6.3 million of outstanding long-term general obligation limited tax debt.

SUMMARY RATING RATIONALE

The notes are secured by gross revenues generated by the city's collection and disposal of refuse from city residents, as well as proceeds of an intended sale of land. Proceeds of the note sale will be used to purchase 82 acres of undeveloped property near the recently completed Austin Interchange on I-75. The city has recently signed agreements with the Dayton-Montgomery County Port Authority for the purchase of the land and with a private developer for the subsequent sale of the land. Per the agreements, the city must purchase the land by August 31, 2011 (or the port authority has the option to sell the land publicly) and close with the developer for the sale of the land no later than 120 days after the city's purchase. The city intends to use the proceeds from the sale to retire the current notes when they mature on February 24, 2012.

Should the sale of land not proceed as scheduled, the city is prepared to redeem the notes upon maturity with the proceeds of an additional short term note issuance or retire the notes through the issuance of long-term non-tax special revenue bonds. Such notes or bonds would be also secured by gross revenues of the city's refuse collection services. The current notes mature in six months and the MIG 1 rating is based on expected market access for the take out refinancing, a history of successful marketing of notes and bonds, and the credit quality reflected in the city's Aa2 long term general obligation rating. Affirmation of the Aa2 long-term general obligation rating reflects the city's large tax base along I-75 in the Dayton (general obligation rated Aa2/stable outlook) metropolitan area, recent stabilization of financial operations supported by the passage of an income tax increase, and manageable debt burden.

STRENGTHS

- Moderately-sized tax base located in Dayton metropolitan area

- Expected growth in financial reserves due to passage of income tax rate increase

CHALLENGES

- Reliance on economically-sensitive income tax revenues

- Above average debt profile with significant share of outstanding debt comprised of short-term notes

DETAILED CREDIT DISCUSSION

EXPECTED MARKET ACCESS FOR REFINANCING

The city's demonstrated ability to access the market includes annual sales of notes over the last few years. Many Ohio cities 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. In total, short-term notes comprise 30% of Miamisburg's total direct debt burden. 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.

Per agreements with the Dayton-Montgomery County Port Authority and the private developer, the city intends to complete this transaction by the end of the current year. The city must complete its purchase from the port authority by August 31, 2011 and close with the developer for the sale of the land within 120 days of the purchase. The city plans to retire the current notes with proceeds from the land sale. Given this timeframe, if the developer ultimately backed out of the agreement to purchase the land, the city would have approximately two months to prepare for note refinancing before the notes mature on February 24, 2012. This timeframe, while somewhat limited, should provide the city with enough time to schedule a sale for refinancing notes sufficiently in advance of the maturity date. We note that the city has no legal obligation to refinance the notes, but the strength of the underlying Aa2 rating is indicative of the city's adherence to sound fiscal management, including that of outstanding obligations. Importantly, this contingency plan incorporates the assumption that the city will have no difficulty with capital market access for the refinancing, which we believe is a reasonable assumption based on the city's history of debt offerings.

The city has limited cash available to redeem the notes upon maturity if market access is an issue. Unrestricted reserves in the General Fund totaled $2.4 million at the close of fiscal 2010, which represents the estimated liquidity that would be available to the city within a fairly short timeframe. The city also has $5.4 million in a Municipal Trust Fund. However, because the city's ability to access those funds requires voter approval or other procedures, we do not consider these restricted funds to be available to redeem the notes upon maturity if necessary.

In addition to land sale proceeds, the city's pledged revenues for the current offering include non-tax refuse collection revenues of the city's General Fund ($992,000 in fiscal 2010). These revenues are generated from the assessment of a fee on residents for the city's collection and disposal of refuse. By ordinance, the city has the sole right to collect refuse and assess a fee for such collections from all residential buildings with fewer than four units. The city assesses a fee of $12 per month on all residents from whom it makes collections and charges are included on utility bills sent to property owners. We note the relative weakness of the security given annual gross revenues of approximately $1 million against a note obligation of $4 million, in the event the city does not sell the land. If, upon maturity, the current issuance were converted into bonds with a twenty-year amortization, average annual debt service would be approximately $350,000, which represents a moderate 35% of fiscal 2010 pledged revenues. While the notes are secured by gross refuse collection revenues, officials report that annual net revenues total just over $100,000. Therefore, annual debt service expenditures of $350,000 would result in a net loss from refuse operations. As refuse operations are part of the city's General Fund, any use of refuse revenues to pay debt service would result in the city having to support refuse operations with other General Fund revenue sources. Favorably, the city recently passed an increase in its income tax rate, which officials report will enable the city to gradually increase General Fund reserves over the near to medium term.

The note resolution includes an additional bonds test of 1.25 times coverage based on estimated debt service associated with the conversion of the notes into long term bonds. The additional bonds test does not apply to any future note issuances.

MODERATELY-SIZED TAX BASE IN DAYTON METROPOLITAN AREA

The city's tax base is expected to exhibit modest growth over the medium term as development surrounding the new Austin Interchange off interstate 75 will likely expand the area's commercial presence. Located approximately 10 miles south of Dayton and 40 miles north of Cincinnati, the city's moderately-sized tax base of $1.3 billion has experienced modest declines in valuation over the past four years. The declines are primarily attributable to the State of Ohio's (Aa1/negative outlook) phase-out of its tax on tangible personal property. New growth potential exists as a recently-completed interchange along I-75 is expected to attract new commercial development over the next few years. Motoman Robotics recently completed construction of a 300,000 square foot facility near this interchange, in which it consolidated operations previously located in West Carrollton and Troy (Aa1), resulting in 285 new jobs in Miamisburg. City officials estimate annual income tax receipts of $350,000 associated with the company. Other recent commercial activity includes the relocation of Evenflo into the city from a neighboring community in 2008 and the consolidation of Dayton Superior's headquarters in the city in 2010. The city's largest employer, Kettering Medical Center (1,514 FTEs) continues to invest in local operations and to maintain a stable presence within the regional healthcare industry. Owing to the general contraction of the manufacturing sector in the Dayton region, Montgomery County's unemployment rate measured 9.4% in May 2011, which was above both that of the state (8.5%) and nation (8.7%) for the same time period. Resident income levels exceed those of the nation, with per capita and median family incomes equivalent to 104% and 114% of national figures, respectively, according to the 2000 census.

RECENT STABILIZATION OF FINANCIAL OPERATIONS DUE TO INCOME TAX INCREASE

The city's financial operations are expected to remain sound over the near term due to a recent increase in the income tax rate that was approved by voters. In the three years prior to fiscal 2010, the city's General Fund had posted operating deficits that reduced the fund's balance from $5.6 million to $4.3 million. Operating deficits in fiscal years 2008 and 2009 were primarily due to declines in income tax revenues of 1.8% and 3.6% in those respective years. Income tax receipts increased modestly in fiscal 2010 and the city concurrently implemented wage and hiring freezes for most positions. As a result, the city's General Fund balance increased to $4.4 million, or 29.4% of revenues. Approximately $1.1 million of the city's fund balance is reserved for an advance made to the city's Golf Course Fund. While this fund is operationally self-supporting, officials report that the advance will likely remain outstanding until general obligation debt supported by golf course operations is retired in 2021. Net of the advance and other encumbrances, the city's unreserved and undesignated General Fund balance at the close of fiscal 2010 was $2.4 million, or a healthy 15.9% of revenues.

Due to prior year operating deficits and growing expenditures, the city sought voter support of an increase in the income tax rate in May 2010. At that time, voters approved an increase in the rate from 1.75% to 2.25% effective January 1, 2011. The rate increase was projected to generate nearly $3 million in annual revenue that was dedicated to support operations and capital improvements. Positively, officials report that year-to-date collections are slightly above earlier projections. As a result, management currently expects an increase in fiscal year-end 2011 General Fund cash reserves of at least $500,000. Looking ahead to fiscal 2012, officials expect a further increase in financial reserves, though the city's budget has not yet been adopted. The city also maintains approximately $5.4 million in a Municipal Trust Fund established from the sale of the city's power utility. The city can access the trust fund only through a vote of the trust fund committee, city council, and the public. While this somewhat limits the fund's immediate availability, the funds could provide additional support should financial operations become stressed.

Income tax receipts account for the city's largest revenue source, comprising 50% of fiscal 2010 General Fund revenues. We note moderate concentration of income taxpayers, with Kettering Medical Center accounting for 10% of total revenues, and Miamisburg School District (Aa2) and Avery Dennison (senior unsecured rated Baa2/stable outlook) each accounting for approximately 5% of collections. Favorably, the city retains existing financial flexibility with 3.27 unused charter mills, which, if levied, could generate an additional $1.5 million in annual revenue. Continued expansion of commercial activity, especially that associated with the recently completed Austin Interchange, will likely contribute to diversification of the city's income tax base, as well as stable growth in annual revenues.

MANAGEABLE DEBT PROFILE; LIMITED FUTURE BORROWING EXPECTED

The city's debt profile is expected to remain manageable given expected future growth in the tax base and rapid amortization of outstanding principal. At 1.6% and 5.2% of full value, respectively, the city's direct and overall debt burdens exceed state and national medians for rated cities. However, amortization of the city's outstanding debt is rapid, with 100% of principal expected to be retired within ten years. In addition to $6.3 million of outstanding general obligation limited tax debt, the city also has outstanding debt associated with the Montgomery County Transportation Improvement District (Aa2), of which the city's share is $5.9 million. Officials report that the transportation improvement district is likely to issue additional bonds over the next 18 months, of which the city's share will be approximately $2 million. In addition to the current notes, the city also has $4.1 million of short-term bond anticipation notes outstanding. All together, the city's post-sale short term notes will comprise 30% of the city's total direct debt, which exposes the city to a degree of market access risk, although we believe this risk should remain manageable, as reflected in the city's general obligation credit profile. All of Miamisburg's debt is fixed rate and the city is not a party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

- Significant expansion of the city's tax base and local economy

- Strengthening of the city's demographic profile

- Growth in financial reserves and liquidity supported by recent voter support for income tax rate increase

WHAT COULD CHANGE THE RATING - DOWN

- Significant declines in taxable values and/or weakening of the city's demographic profile

- Material declines in the city's General Fund financial reserves and/or economically-sensitive revenues

KEY STATISTICS

2010 Census population: 20,181 (3.6% increase since 2000)

2011 Full valuation: $1.3 billion (0.3% five-year average annual increase)

Estimated full value per capita: $64,482

2000 Per capita income (as % of U.S.) 104.2%

2000 Median family income (as % of U.S.) 113.9%

Montgomery County unemployment (May 2011): 9.4% (Ohio: 8.5%; U.S.: 8.7%)

Fiscal 2010 General Fund balance: $4.4 million (29.4% of revenues)

Fiscal 2010 unreserved, undesignated General Fund balance: $2.4 million (15.9% of revenues)

Overall debt burden: 5.2% (1.6% direct)

Principal amortization (10 years): 100%

General obligation bonds outstanding (including Transportation Improvement District debt): $12.2 million

Short-term notes outstanding: $8.1 million (including current issue of $4 million revenue notes)

PRINCIPAL METHODOLOGY USED

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, [and] parties not involved in the ratings, [and] public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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

Matthew Butler
Analyst
Public Finance Group
Moody's Investors Service

Emily Robare
Backup Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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Research Clients: (212) 553-1653


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MOODY'S ASSIGNS MIG 1 RATING TO THE CITY OF MIAMISBURG'S (OH) $4 MILLION SPECIAL OBLIGATION REVENUE NOTES, SERIES 2011
No Related Data.
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