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MOODY'S UPGRADES TO Aa3 FROM A1 THE GENERAL OBLIGATION DEBT RATING FOR THE TOWN OF PROSPER (TX); ASSIGNS Aa3 TO $2 MILLION TAX NOTES, SERIES 2010

04 Oct 2010

Aa3 RATING AFFECTS $37.4 MILLION IN OUTSTANDING PARITY DEBT, INCLUSIVE OF CURRENT SALE

Municipality
TX

Moody's Rating

ISSUE

RATING

Tax Notes, Series 2010

Aa3

  Sale Amount

$2,045,000

  Expected Sale Date

10/12/10

  Rating Description

General Obligation Limited Tax

 

Opinion

NEW YORK, Oct 4, 2010 -- Moody's Investors Service has assigned a Aa3 underlying rating to the Town of Prosper's (TX) $2 million Tax Notes, Series 2010. Concurrently, we have upgraded to Aa3 from A1 the town's general obligation debt rating, affecting $35.4 million in outstanding parity debt. The rating also takes into account an additional $790,000 in outstanding parity debt not rated by Moody's. Proceeds from the current sale will finance dispatch-related capital projects and the purchase of two ambulances.

RATING RATIONALE

The bonds are secured by a direct and continued ad valorem tax levied, within the limits prescribed by law, on all taxable property within the town. The upgrade reflects the town's continuously growing tax base characterized by favorable socioeconomic indices and ample financial reserves. The elevated debt burden, driven by rapid population growth, is also factored into the Aa3 rating.

TAX BASE EXPANSION CONTINUES FOR WEALTHY DALLAS SUBURB

The Town of Prosper spans 27 square miles in the northwest corner of Collin County (Aaa general obligation rating) and extending into Denton County (Aaa). Favorably located 35 miles north of downtown Dallas (Aa1), the town has rapidly developed as a residential community. The tax base has experienced a notable 23% average annual growth rate over the past five years, reaching $1.1 billion in fiscal 2011. Resident wealth levels are strong, as measured by per capita income and median family income (from 2000 U.S. Census) that approximate 130.9% and 149.5% of the state levels, respectively. Further augmenting the socioeconomic profile, the median home value is well above average at $333,000. The June 2010 unemployment rate of 7.9% was below the state (8.5%) and the U.S. (9.6%) for the same time period. With an estimated 80% of the town's land remaining available for development coupled with the beneficial proximity to the Dallas employment base, we believe the tax base will continue to experience growth over the long term; however, we expect near-to-medium term growth rates to trend below historical levels.

CONSERVATIVE FISCAL MANAGEMENT YIELDS SOLID FINANCIAL OPERATIONS

In addition to the charter-required financial reserves equal to 10% of operating expenditures, Town Council has added an additional 25% operating cost floor for the General Fund balance. The town has consistently posted annual operating surpluses, resulting in a fiscal 2009 General Fund balance of $4.4 million (71.4% of revenues). Fiscal 2009 General Fund revenues were largely derived from property taxes (50%), sales tax collections (18%), fees and permits (9%), and franchise fees (7%). Management estimates the fiscal 2010 General Fund balance will increase to $4.6 million, noting overall General Fund revenues exceeded the budget by 5%. The fiscal 2011 budget projects a $150,000 surplus, conservatively assuming an 8% reduction in sales tax revenues and including $60,000 budgeted for contingencies. Given management's plans to continue growing General Fund reserves in line with budgetary expansion, we believe the town's financial operations will remain solid over the medium term.

DEBT PROFILE EXPECTED TO REMAIN HIGH

Inclusive of the current sale, the town's debt burdens are above average at 3.3% direct and 15.4% overall, both expressed as a percentage of fiscal 2011 assessed valuation. Approximately 35% of outstanding general obligation debt was issued to finance water and sewer related capital improvements; management reports net revenues of the water and sewer system covered 100% of utility-related debt service requirements in fiscal 2010. When netting out utility-supported debt, the debt burdens remain elevated but are reduced to 2.1% direct and 14.1% overall. The significantly higher overall debt burden is largely attributable to debt issued by the local school district, Prosper ISD (A1), to accommodate rapid enrollment growth. The town has no exposure to variable rate debt or interest rate derivatives. Amortization is average with 56.7% of principal retired in ten years. The town has no remaining debt authorization, but officials indicate plans to hold a bond election within the near term. We believe the town's debt profile will remain high over the long term given plans for additional debt issuance; however, significant pressure on debt burdens is expected to be mitigated by continued tax base expansion.

WHAT COULD CHANGE THE RATING-UP:

*Substantial tax base expansion coupled with maintenance of healthy socioeconomic profile

*Trend of surplus financial operations, growing reserves in line with budgetary expansion

WHAT COULD CHANGE THE RATING-DOWN:

*Additional debt issuance absent continued tax base expansion, resulting in increased debt burdens

*Depletion of financial reserves, whether it be for general operations or capital outlay

KEY STATISTICS

2010 Population: 9,350

FY 2011 Full Value: $1.1 billion

Full Value per Capita: $122,715

Per Capita Income (2000 Census): $25,652 (130.9% of state; 118.9% of U.S.)

Median Family Income (2000 Census): $68,542 (149.5% of state; 137.0% of U.S.)

Direct Debt Burden (net of utility-supported debt): 2.1%

Overall Debt Burden (net of utility-supported debt): 14.1%

Payout of Principal (10 years): 56.7%

FY 2009 General Fund Balance: $4.4 million (71.4% of General Fund revenues)

Post-sale Parity Debt Outstanding: $38.2 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Prosper (Town of) TX was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. 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, 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

Leslie Lukens
Analyst
Public Finance Group
Moody's Investors Service

Michelle Smithen
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S UPGRADES TO Aa3 FROM A1 THE GENERAL OBLIGATION DEBT RATING FOR THE TOWN OF PROSPER (TX); ASSIGNS Aa3 TO $2 MILLION TAX NOTES, SERIES 2010
No Related Data.
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