Fitch Ratings assigns an 'A+' rating to the following Rutherford County, North Carolina (the county) bonds:
--$19.82 million limited obligation bonds (LOBs), series 2011.
The bonds are expected to sell via negotiation on June 16.
In addition, Fitch affirms the 'AA-' rating on the county's outstanding $7 million general obligation (GO) bonds and the 'A+' rating on the outstanding $36.2 million certificates of participation (COPs).
The Rating Outlook is Stable.
RATING RATIONALE:
--The county's debt levels are low, and amortization of principal is above-average.
--Despite recent planned general fund balance drawdowns, the county has a solid financial position evidenced by sound reserve levels.
--The county's economy is limited and remains somewhat concentrated in textile manufacturing, resulting in high unemployment and modest tax base growth.
--County wealth levels are below-average relative to state and national levels.
--The LOBs contain solid legal provisions, are secured by a lien on essential county property, and are subject to annual appropriation.
KEY RATING DRIVERS:
--Efforts to encourage economic development and diversification are key in light of recent economic weakness and although decreasing, above average unemployment.
--Continued prudent financial management and maintenance of sound financial margins.
SECURITY:
The COPS and LOBs evidence a proportionate and undivided interest in rights to receive certain payments pursuant to an Installment Financing Contract between the county and the Rutherford County Public Facilities Company. The county has executed and delivered a deed of trust, granting funds appropriated for payment by the county of principal and interest on the associated bonds and a lien on the mortgaged property subject to permitted encumbrances. Mortgaged property conveyed under the deed of trust includes three schools, whose essentiality provides sufficient incentive to appropriate.
The GO bonds are general obligations of the county, secured by its full faith and credit pledge.
CREDIT SUMMARY:
Rutherford County is located in the Blue Ridge Mountains in western North Carolina, about 70 miles west of Charlotte. Its population has remained relatively flat this decade, in contrast to the moderate 10.5% growth of the 1990s. While the county's economy remains concentrated in manufacturing and is therefore somewhat vulnerable during periods of economic softening, efforts have been made to diversify the employment and tax bases. Job and tax base losses over the past few years have been offset by similarly sized gains, with relatively little net change. The county's unemployment rate increased dramatically from a 7.7% as of June 2008 to a peak of 17.9% in January 2010; although it has subsequently declined each month, as of March 2011 it still is a high 13.9%. Wealth indicators, typical of rural western North Carolina counties, are roughly 70% of national levels and 80% of state averages.
With the softening of the national housing market, several large real estate projects have encountered difficulty, leading to one bankruptcy filing and non-payment of property taxes by several developers. These delinquencies have contributed to the nearly 3% decline in the county's current property tax collection rate since fiscal 2008 to a below-average 93.8%. Despite the declining collection rate, the delinquent property taxes have not adversely impacted the county's financial position given the county's conservative budgeting practices.
Reserve levels have remained sound. Due to the slowing economy and ensuing revenue declines, the county prudently planned to draw down the general fund balance by a maximum amount of $1.8 million (the surplus generated in fiscal 2008) over two years, fiscal 2009 and 2010. However, due to substantial expenditure reductions and prudent financial management, the county generated a slight surplus in fiscal 2009 and drew down only $1.2 million in fiscal 2010, closing with an unreserved fund balance of $11.9 million, equal to 21.4% of spending. Including the reservation for state statute, which includes most county receivables, reserves equaled 28% of spending in fiscal 2010. The county conservatively anticipates a modest $325,000 surplus for fiscal 2011 0.6% of GF spending) due to a one-time sale of property as well as unspent appropriations. The proposed fiscal 2012 budget appropriates roughly $1.25 million of general fund balance (2.5% of GF spending). The county plans to adhere to its unofficial policy of maintaining reserves at 20% of spending.
The county's overall debt levels are low at roughly $1,000 per capita and 1% of market value and amortization is above average at 74% within 10 years. The current issuance will be used to refund certain maturities of the county's outstanding COPs and installment financing agreements for interest savings. The county may issue roughly $1.5 million in general obligation debt to fund water and sewer projects in fiscal 2012. Pension obligations are manageable.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, Case-Shiller, Inc., and IHS Global Insight.
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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