Mar. 19, 2010 (Business Wire) -- Fitch Ratings assigns the following ratings to Isle of Wight County (the county), Virginia:
--$14 million general obligation (GO) public improvement and refunding bonds, series 2010A, 'AA-'; and
--$7.1 million GO public improvement notes, series 2010B, 'F1+'.
The bonds and notes are expected to sell via negotiation during the week of April 5th.
In addition, Fitch affirms the 'AA-' rating on the county's $85 million in outstanding GO bonds.
The Rating Outlook for the bonds is Stable.
RATING RATIONALE:
--Isle of Wight County's economic diversification has already been supported by growth of the regional port, mitigating the employment concentration of the manufacturing sector.
--Positive economic indicators include sound labor force and employment growth and below-average unemployment rates, although wealth levels are somewhat below regional and national averages.
--Ample reserve and liquidity levels, competitive tax rates, and solid assessed value (AV) growth enhance the county's financial flexibility.
--Debt levels should remain moderately low, given the county's manageable capital needs.
--The 'F1+' rating reflects that the long-term credit-worthiness inherent in the 'AA-' rating enhances the county's ability to obtain market access to refinance the notes upon their maturity.
KEY RATING DRIVERS:
--Maintenance of financial flexibility and above-average economic metrics despite the imminent closure of International Paper, the county's largest taxpayer and one of its most significant employers.
--Continued diversification of the county's employment base, including growth in the distribution industry.
SECURITY:
The bonds and notes are general obligations of the county, which has irrevocably pledged its full faith and credit and unlimited ad valorem taxing power.
CREDIT SUMMARY:
Isle of Wight is located in the Hampton Roads region of southeastern Virginia. Its economy, while still concentrated in paper products, lumber, and meat processing, is diversifying as a result of the increased demand for warehousing and distribution that is driven by the growth of the near-by Port of Virginia. Fitch anticipates that the presence of the port, with its commercial and military activities, will help the county compensate for the imminent closure of a mill owned by one of its largest employers, International Paper (1,100 employees). The county projects that anticipated port growth by 2040 could support full build-out of the Shirley T. Holland Intermodal Park, which has already generated $185 million of new private investment and over 600 new jobs. The county's unemployment rate tracks at state and well below national averages, and remains low at 6.6% in December 2009. Wealth indicators are somewhat below average.
Financial operations are consistent and strong, and reserve levels are sound, even after planned general fund balance reductions for capital and other one-time expenditures. The county concluded fiscal 2009 with an unreserved fund balance equal to 18.9% of spending, handily meeting its conservative general fund policy of unreserved fund balance exceeding 10% of budgeted operating expenses. Preliminary fiscal 2010 projections indicate a modest decline in unreserved fund balance resulting from a planned drawdown to fund capital needs. Total assessed valuation (AV) growth has averaged a healthy 14.6% annually since fiscal year 2006, although the county projects flat growth during the next revaluation. Tax rates are among the lowest in the region, and the county has stated that it will consider raising the rates to compensate for the loss of revenue from the closure of International Paper, with combined real and personal property representing 12.6% of total AV.
The county's debt burden is expected to remain moderately low due to limited capital needs and a willingness to defer capital spending to conserve resources. Overall debt equals $3,190 per capita and 2.0% of market value and amortization is marginally below average. Debt ratios, excluding the amortization rate, include GO backed debt issued for the non-self supporting utility system. For both the current and subsequent financings, the county intends to issue bond anticipation notes (BANs) for utility needs and then refinance with long-term debt. The county's fiscal years 2011-2015 capital improvement plan (CIP) totals $36 million, well below that of previous years as the county has deferred non-essential projects and revisited school enrollment projections. Utility needs represent around three-quarters of the projects. The plan will be nearly fully debt financed.
CRITERIA:
Applicable criteria available on Fitch's website at www.fitchratings.com:
--'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
Considerations for Taxable/Build America Bonds Investors:
The following sector credit profile is provided as background for investors new to the municipal market.
Local Government General Obligation Bonds:
The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing, and therefore is the best indicator of its overall credit quality. The average local government general obligation rating is 'AA-' with approximately 56% rated at or above 'AA-' and 7% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities including debt and post-employment benefits, and/or unusually limited financial flexibility.
Additional information is available at www.fitchratings.com.
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