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MOODY'S ASSIGNS MIG 1 RATING TO THE CITY OF WALTHAM'S (MA) $13.1 MILLION G.O. BOND ANTICIPATION NOTES

14 Feb 2011

MOODY'S ASSIGNS Aa1 RATING WITH A NEGATIVE OUTLOOK ON THE CITY'S LONG-TERM PARITY DEBT, AFFECTING $86.9 MILLION

Municipality
MA

Moody's Rating

ISSUE

RATING

General Obligation Bond Anticipation Notes

Aa1/MIG 1

  Sale Amount

$13,102,000

  Expected Sale Date

02/15/11

  Rating Description

General Obligation

 

 
Moody's Outlook   Negative
 

Opinion

NEW YORK, Feb 14, 2011 -- Moody's Investors Service has assigned a MIG1 rating to the City of Waltham's (MA) $13.1 million Bond Anticipation Notes (dated February 22, 2011, payable February 22, 2012). Concurrently, Moody's has assigned a Aa1 rating to $86.9 million of outstanding long-term debt and revised the outlook to negative from stable. The notes are secured by the city's general obligation limited tax pledge, as debt service is subject to the limitations of Proposition 2 ½. Proceeds will renew $9.97 million of outstanding notes and provide $3.1 million of new money for various municipal capital purchases and improvements.

RATINGS RATIONALE

The MIG 1 rating reflects Waltham's long-term credit profile and history of market access. The Aa1 rating and negative outlook reflects the city's sizable and diverse tax base, manageable debt burden and narrowing financial position.

STRENGTHS

-Sizeable and Diverse Tax Base

-Manageable Debt profile

CHALLENGES

-Weakening Financial Position

-State Aid Decreases

DEMONSTRATED MARKET ACCESS

Waltham enjoys favorable access to the capital markets, having received seven bids on its December 2010 note sale and five bids on its June 2008 and June 2007 note sales. All bids were received from regional and national financial institutions. Based on this history and the city's above-average credit quality, Moody's anticipates the city will successfully refund these notes at their February 22, 2012 maturity.

FURTHER WEAKENING EXPECTED IN HISTORICALLY STRONG FINANCIAL POSITION

Ongoing expenditure demands and reductions in state aid are expected to continue to challenge the city's ability to regain structural balance and improve its financial position following a series of fund balance reductions. Following General Fund balance draw downs in five of the last six fiscal years the city has reduced its Unreserved General Fund balance position by 22%, to 7.2% of revenues at the end of fiscal 2010 down from a more satisfactory 13% in 2007, with an additional decline possible for fiscal 2011. Importantly, the city maintains a Stabilization Fund which was built up over a number of years to be drawn down in order to offset debt service costs associated with sizable school borrowings. The balance of the Stabilization Fund declined to $1.7 million at the end of fiscal 2010, down from $9 million in 2007 with a planned $1.1 million draw down in fiscal 2011.

Audited fiscal 2010 financial statements show a $1.6 million General Fund balance reduction, the city's fourth consecutive decline, resulting primarily from lower than budgeted revenues including a $1.1 million supplemental appropriation of reserves to cover greater than budgeted snow removal costs. Notably, at year end, the city's state certified free cash balance reached its lowest level since 2000, at $7.2 million.

The original fiscal 2011 budget represented a 2% increase of the prior year budget and did not include a free cash appropriation. Subsequently, Waltham has authorized a supplemental $2 million appropriation from certified free cash to cover greater than budgeted snow and ice removal costs. However, positive local revenue variances may minimize the draw down. Revenue estimates indicate a $2 million positive variance year-to- date, driven by increased permit activity, motor vehicle excise tax and meal tax authorized in July, 2010. Waltham will appropriate $1.1 million from the Stabilization Fund to offset school renovation debt as planned, leaving a $500,000 fund balance. The fiscal 2012 budget planning is in progress and will not be voted on by City Council until May 2011. The budget will assume the state aid reductions which may reduce the city's reserve position to levels no longer consistent with the Aa1 rating category. Future rating reviews will weigh the city's ability to regain fiscal stability and grow reserves in line with revenue growth.

The city balance of excess levy capacity is $4.4 million in fiscal 2011 up from $3.3 million in fiscal 2010, which followed a substantial decline from $11.5 million in fiscal 2008. Further, the city has identified a sizable Other Post Employment Benefits (OPEB) liability, which was recently valued at $395 million (pre-funded), significantly greater than its $118.5 million unfunded pension liability. Waltham has established a Post-Employment Health Insurance Fund, with a nominal balance of $127,027, a small portion of the $12 million of additional funds that would be needed to fully fund the Annually Required Contribution (ARC). Given Proposition 2 ½ revenue raising constraints and the limited flexibility to alter benefits Moody's believes Waltham, like most Massachusetts communities, will be challenged to fully meet its annually required contribution payments.

SIZEABLE AND DIVERSE TAX BASE REMAINS STABLE

Moody's believes the city's sizeable $9.2 billion equalized valuation will continue to remain relatively stable given its diverse mix of properties and favorable location. Located approximately nine miles west of Boston (rated Aaa), in the heart of the Rt. 128 corridor, the city's equalized value has increased at a 1.8% average annual rate over the last five years but showed a 7.3% decrease in fiscal 2010, reflecting reduced residential values. The city's assessed values have experienced reductions of 1.0%, 4.2%, and 1.8% in fiscal years 2009, 2010 and 2011, respectively. Positively, due in large part to ongoing commercial development the value of new property added to the tax levy in fiscal 2011 is $3.5 million following two years of growth in excess of $2 million annually, despite the challenging economic environment. Notably, the city's full value does not incorporate the sizable $1.4 billion of tax-exempt property, a significant portion of which is held by the city's two major institutions of higher education, Brandeis University (rated A1/stable outlook) and Bentley University (rated A3/ stable outlook).

The city is primarily residential (67% of 2011 assessed valuation), but boasts a healthy commercial and industrial presence (a combined 30% of assessed valuation). Although a mature community, the city continues to benefit from healthy growth in the non-residential sectors, particularly along the Route 128/Interstate 95 corridor where the prospect for continued growth remains strong. Notably, the city's $2.5 billion commercial/industrial tax base makes it the third most highly valued business center in the state. This sector is anchored by a number of sizable employers including Bank of America (senior unsecured A2/negative outlook-660 employees), Keyspan (senior unsecured Baa1/stable outlook-600 employees), Raytheon (senior unsecured Baa1-590 employees) as well as a burgeoning biotech sector comprised in part by Nova Biomedical (600 employees), Parexel International (500 employees) and AstraZeneca (senior unsecured A1/stable outllok-400 employees). Also, boosting the city's profile as a center for biotech was the recent opening of the Massachusetts Life Science Center, the state organization responsible for administering the Commonwealth's life sciences initiative. Further augmenting the commercial sector the city has experienced continued growth along the Rt. 128 corridor including the redevelopment of a 120 acre property previously the Polaroid Headquarters adding retail and office space and the development of a consolidated American campus by the French software firm, Dassault Systemes, which will add an estimated 800 jobs to the region.

The city's residential income levels approximate Commonwealth medians and are higher than national medians, but trail medians for similarly-rated credits. However, this is partially reflective of approximately 10,000 college students that reside within the city. Equalized value per capita below state levels with $152,829, which is 95% of the Commonwealth but a solid 171% of the national median.

DEBT POSITION EXPECTED TO REMAIN MANAGEABLE

Moody's expects the city's direct debt burden (0.9% of equalized value) to remain manageable given limited future borrowing plans and favorable amortization of principal (72% repaid in 10 years). The city's overall debt burden increases to an above-average 3.5% of equalized valuation after accounting for overlapping debt associated with the Massachusetts Water Resources Authority (revenue bonds rated Aa1) and Massachusetts Bay Transportation Authority (senior sales tax bonds rated Aa1). Water and sewer debt is expected to continue to be self-supporting. Debt service was a manageable 5.7% of 2010 operating expenditures, however up from a low of 4.4% of expenditures in fiscal 2009. Near-term borrowing plans are expected to be limited to road and rate-supported water and sewer system improvements. Also of note, Waltham has no exposure to variable or auction rate debt or any interest rate swap agreements.

The outlook is negative reflecting our view that the city will remain challenged to stabilize and grow its reserve position to levels consistent with the current rating category.

What could make the rating go UP (remove the negative outlook):

-Restoration of Structural Balance

-Growth of reserve levels

What could make the rating go DOWN:

-Continued Operating Budget Deficits

-Deterioration of the reserve levels or tax base

-Significant increase in debt

KEY STATISTICS:

2008 Population: 60,236 (+ 1.7% since 2000)

2011 Equalized Value (EQV): $9.2 billion

Equalized Value Per Capita (as % of MA and US): $152,829 (95% and 171%)

1999 Per Capita Income (as % of MA and US): $26,364 (102% and 122%)

1999 Median Family Income (as % of MA and US): $64,595 (105% and 129%)

2010 General Fund balance: $23.9million (12.9% of General Fund revenues)

2010 Unreserved General Fund balance: $13.3 million (7.2% of General Fund revenues)

2010 Stabilization Fund: $1.7 million (1% of General Fund Revenues)

2011 Available Funds (Stabilization Fund and Unreserved Fund balance): $15 million (8% of General Fund revenues)

Direct Debt Burden: 0.9% of EQV

Overall Debt Burden: 3.5% of EQV

Payout of Principal in 10 Years: 72.1%

Long-Term General Obligation Debt Outstanding: $86.9 million

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and 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

Shannon McCue
Analyst
Public Finance Group
Moody's Investors Service

Andy Moleon
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 THE CITY OF WALTHAM'S (MA) $13.1 MILLION G.O. BOND ANTICIPATION NOTES
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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