Fitch Ratings assigns an 'F1+' rating to $130 million of Union County, New Jersey (the county) bond anticipation notes.
The notes are scheduled for competitive sale on June 22, 2011. They are being issued to roll over a portion of the county's outstanding bond anticipation notes and finance additional county projects.
RATING RATIONALE:
--The diverse local economy benefits from Union
County's extensive multi-modal transportation network and its proximity
to New York City.
--Overall debt levels are manageable even when
including self-supporting contingent obligations; debt amortization is
rapid and capital needs are modest with limited additional debt plans.
--Financial
margins are an area of mounting stress.
--New management has
demonstrated knowledge of the county's financial pressures and a
willingness to address them.
--The 'F1+' short-term rating reflects
the overall credit strength of the county (GO bonds rated 'AAA' with a
Stable Outlook by Fitch) and Fitch's belief that the county will have
adequate access to the capital markets.
KEY RATING DRIVER:
--The county's ability to manage expenditures
and avoid further fund balance reductions despite assessed valuation
declines and tax caps, particularly given its relatively low fund
balance levels, is key to maintaining this rating level.
SECURITY:
The notes are direct and general obligations of the
county for which the full faith and credit of the county will be pledged.
CREDIT SUMMARY:
Union County is advantageously located 20 miles
south of New York City and benefits from an extensive transportation
network including commuter rail service, numerous major road systems, a
major international airport and the Port of Elizabeth, which is the
largest port on the east coast. The county's sizeable tax base declined
6% in 2011, and management expects a similar decline in 2012. The county
has a diverse array of employers and wealth levels. Overall
socioeconomic indicators are generally adequate with per capita income
levels roughly on par with the state average and well above the national
average; March 2011 unemployment rates were at 10.1% compared to 9.6%
for the state. The county has several communities with very elevated
wealth and educational attainment levels. The recent merger of the
county's two largest private employers, Merck and Schering-Plough, will
likely lead to significant layoffs, but specific numbers are not yet
available.
After two consecutive years of operating surpluses, the county experienced a $6 million deficit in 2010 due primarily to losses in Runnells Hospital, bringing its ending unreserved current fund balance to 4.7% from 6.1% in 2009. Management estimates the county will generate at least a nominal surplus in 2011, with the potential for some additional upside. The county could be challenged to increase revenues in future years due to state-imposed tax caps, but plans to actively manage expenditures to maintain structural balance. Although the county has had a consistent history of lean unreserved balances, further reduction in the unreserved general fund balance from the current level could place downward pressure on the rating.
The county's debt profile continues to be a credit strength. Direct debt ratios are low at $882 per capita and 0.6% of true value assuming self-sufficiency of contingent obligations and $1,332 per capita and 0.9% of true value assuming full county support of the contingent obligations. Debt is paid rapidly, with 70% amortized within 10 years. The county does not have extensive additional debt planned other than issuing long-term debt to restructure outstanding short-term debt. The county is contingently obligated to $58 million of Union County Utility Authority debt for a solid waste disposal facility. To date, the county has not been required to make payments under this county guarantee. Agreements regarding the facility are currently being restructured and extended in a manner such that the county will be eligible for a small annual payment but will also increase the amount of solid waste it is obligated to supply.
The county participates in two state-run pension systems for employees and public safety. The county made its required payments to these systems in 2010, with the unaudited contributions totaling 4.7% of expenditures, and they are expected to increase to approximately 5.6% of budgeted expenditures in 2011. Other post-employment benefit (OPEB) costs are manageable and the county has established a trust.
Additional information is available at www.fitchratings.com.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating
Criteria', dated Aug. 16, 2010;
--'U.S. Local Government
Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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Contacts:
Fitch Ratings
Primary Analyst:
Eric Friedman, +1-212-908-9181
Director
Fitch
Inc.
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst:
James Mann, +1-212-908-9148
Senior Director
or
Committee
Chairperson:
Steve Murray, +1-512-215-3729
Senior Director
or
Media
Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com