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Rating Action:

Moody's affirms City of San Jose, CA's Aa1 GOs, Aa2 and Aa3 lease revenue bonds; outlook is stable

17 May 2018

New York, May 17, 2018 -- Moody's Investors Service has affirmed the City of San Jose's Aa1 ratings on its general obligation bonds, as well as its Aa2 and Aa3 lease revenue bond ratings. The outlook is stable.

RATINGS RATIONALE

The Aa1 GO rating reflects the city's exceptionally large and diverse tax base, strong local economy and residents' solid wealth indicators. The rating also incorporates the city's low debt burden and sound financial position that is expected to remain healthy largely due to management's adopted fiscal policies and conservative budgetary practices. The city's high pension and OPEB burdens are also incorporated in the rating. Pension and OPEB costs are projected to remain high and will continue to be budgetary pressures. However, we expect the city's revenue base will remain very strong and that management will to continue to implement the necessary strategies to fund these expenditures while preserving the city's healthy financial position.

The Aa2 lease-backed ratings are one notch lower than the Aa1 GO rating, reflecting a standard California abatement lease legal structure and leased assets that we view as "more essential." The notching also reflects the strong legal features of California general obligation bonds that are not shared by lease revenue debt.

The Aa3 lease revenue bond rating on the city's outstanding Series 2007A and Series 2011A are two notches lower than Moody's Aa1 rating on the city's general obligation bonds. The notching reflects a standard legal structure for a California abatement lease financing and a leased asset, that we view as "less essential." The notching also reflects the strong legal features of California general obligation bonds that are not shared by lease revenue debt.

RATING OUTLOOK

The outlook is stable and reflects the city's large and diverse tax base that we expect will continue to grow at a moderate rate and management's demonstrated ability to preserve its financial position through challenging economic and financial cycles.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Significant and sustained improvement in the city's fiscal position

- Material decrease in the city's unfunded pension and OPEB liabilities

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Significant deterioration of the city's financial position

- Inability to effectively manage retirement costs

- Outer year deficits are larger than current projections

LEGAL SECURITY

The general obligation bonds are secured by an unlimited property tax pledge of all taxable property within the city boundaries. Debt service on the rated debt is secured by the city's voter-approved unlimited property tax pledge.

Security for the lease payments is a contractual pledge of the city of all of its available financial resources, subject to abatement in the event of damage or destruction of the leased property.

USE OF PROCEEDS

Not applicable

PROFILE

San Jose is located in Santa Clara County (Aa2 positive), with a population of over just over one million. The city has the largest economy in Silicon Valley, and the unemployment rate of 2.7% (as of March 2018) is significantly below both the state (4.2%) and the nation (4.1%).

METHODOLOGY

The principal methodology used in the general obligation ratings was US Local Government General Obligation Debt published in December 2016. The additional methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alexandra Cimmiyotti
Lead Analyst
Regional PFG West
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco 94111
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Michael Wertz
Additional Contact
Regional PFG West
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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