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Rating Action:

Moody's downgrades to A2 from A1 the rating on Nassau County's (NY) $1.4 billion in outstanding general obligation debt; outlook now stable

Global Credit Research - 23 Oct 2012

Also downgrades to Baa1 from A3 the county's $13.1 million Regional Off-Track Betting Corporation's revenue bonds

New York, October 23, 2012 -- Moody's has downgraded to A2 from A1 the rating on Nassau County's (NY) $1.4 billion in outstanding general obligation debt and revised the outlook to stable from negative. The debt is secured by a general obligation pledge as limited by the Property Tax Cap - Legislation (Chapter 97 (Part A) of the Laws of the State of New York, 2011). At this time, Moody's has also downgraded to Baa1 from A3 the long-term rating on $13.1 million of the county's Regional Off-Track Betting Corporation's (NROTB) Revenue Bonds.

SUMMARY RATINGS RATIONALE

The downgrade to A2 reflects further weakening of the county's financial position in fiscal 2011 and the expectation that fund balance will continue to decline in fiscal 2012. The rating also incorporates the county's significantly reduced liquidity, weak governance practices, and significant exposure to variable rate debt and interest rate swaps. Positive factors supporting the A2 rating include: oversight of the county's finances provided by the Nassau County Interim Finance Authority (NIFA, sales tax revenue bonds rated Aa1, stable outlook) which moved to a hard control board on January 26, 2011, a large and wealthy tax base, and a manageable debt position.

The stable outlook reflects the expectation that the county's financial position and liquidity will not deteriorate materially from their currently weak levels.

The NROTB special obligation bonds are secured by payments made directly to the Trustee by Nassau County pursuant to a Support Agreement. The Support Agreement obliges the county to make payments for debt service subject to annual appropriation. While the Support Agreement provides satisfactory legal protections to bondholders, including a pledge that the county executive will include the appropriation for this purpose in the annual budget each year, the legislature is not legally required to appropriate for this purpose. The Baa1 rating is linked to the county's credit quality, and reflects appropriation risk and non-essentiality of the financed asset.

STRENGTHS

-Large and diverse tax base which benefits from proximity to New York City

-Strong socio-economic profile with above-average personal wealth and income levels

-Oversight provided by the Nassau County Interim Finance Authority (NIFA)

CHALLENGES

-Limited financial flexibility given narrowing liquidity, modest financial reserves and a trend of structurally imbalanced operations

- Exposure to economically volatile sales tax revenues

- Exposure to credit market disruption given substantial variable rate debt and swap portfolio, as well as dependence on substantial cash flow borrowing to manage operations

Outlook

The stable outlook reflects the expectations that the county's financial position will not experience significant additional declines and that recent structural enhancements will provide long-term stability. The NIFA wage freeze has also helped the county manage their financial position and their oversight and requirement for multi-year budget forecasts provides additional bond holder security. Additionally, sales tax revenues have returned to pre-recession levels which, coupled with NIFA set-asides expected to decline beginning in 2013, are expected to provide significant budgetary flexibility.

WHAT COULD MAKE THE RATING GO UP:

- Audited fiscal 2012 results that show significant increases to reserve levels

- Significant improvement in the county's net cash position resulting in a decline in cash flow borrowing

-

WHAT COULD MAKE THE RATING GO DOWN:

- Weaker fiscal 2012 results and declines in reserve levels

- Declining net cash position or increased cash flow borrowing further straining the county's liquidity

- Long-term significant declines in county tax base, unemployment levels, or wealth indicators.

- Substantial increase in county's debt burden

- A 2013 budget that is highly reliant on one-shot revenues and aggressive budget assumptions

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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, public information, and confidential and proprietary Moody's Analytics' 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 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

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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.

Robert Weber
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Geordie Thompson
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's downgrades to A2 from A1 the rating on Nassau County's (NY) $1.4 billion in outstanding general obligation debt; outlook now stable
No Related Data.

 

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