Fitch Rates Fresno Joint Powers Financing Authority, California's Lease Revs 'A+'

SAN FRANCISCO--(BUSINESS WIRE)--Jan. 31, 2005--Fitch Ratings assigns 'A+' ratings to the following issues for the city of Fresno Joint Powers Financing Authority, CA:

-- $4.9 million series 2005A lease revenue bonds;

-- $45.3 million series 2005B lease revenue bonds.

The series 2005A bonds (fixed-rate) and the series 2005B bonds (auction-rate securities) are scheduled to sell via negotiation by UBS Financial Services Inc. on or about Feb. 8 and Feb. 23, respectively. Fitch rates the city of Fresno's implied general obligation bond rating 'AA-'. The Rating Outlook is Stable.

The series 2005A bonds will refund the city's outstanding certificates of participation, series 1994. The series 2005B will finance the construction of various capital improvement projects within the city in connection with the 'No Neighborhood Left Behind' infrastructure plan. Lease rental payments will be made under five separate leases for use of existing city assets.

The 'A+' rating reflects the Fresno's stable economy and strong financial results characterized by prudent management practices and above-average reserves. A good lease structure and moderate to high debt burden are also factored into the rating. The tax base and underlying economy are moderately concentrated, though diversifying, and while income levels are below average, the reasonable cost of living offsets this concern. Fitch believes Fresno's economy is at the beginning of transition from an agricultural based economy and continued diversification in both the revenue and economic base will enhance credit quality.

Fresno is the one of the largest cities in California and the center of the state's second fastest growing metropolitan area. While agriculture remains an important industry, the economy has been rapidly diversifying, boasting substantial increases in all industries. Assessed values and building permit activity continue to record good gains, reflecting the city's strategic location and affordable cost of living. The city's downtown area is undergoing development through both public and private projects, including market rate housing, a regional medical center, and a sports and performance arena. Despite steady construction activity, the city's jobless rate is still substantially higher than the state and national level. The city's average unemployment rate for 2004 stands at 11.6% through November of last year.

The city's financial operations are well managed, with conservative revenue forecasting and excellent cost control measures contributing to strong year-end results. The fiscal 2004 fund balance increased $3.5 million to a high of about 20% of general fund expenditures and transfers out. While Fitch feels reduced state revenues are a credit concern for all California municipalities, Fresno's dependence on state funding is low. Fresno has a strong reserve policy, adopted by the city council, of 5% of expenditures and transfers. Additionally, management has displayed considerable acumen in managing expenditures and in negotiating labor contracts tied to general fund results. Further, above-budget sales and property tax receipts have offset recent state revenue losses. Fitch expects the city to continue taking such actions to maintain the general fund's healthy liquidity and reserves.

This transaction's legal provisions are sound and include the city's covenant to budget and appropriate for lease payments, a standard debt service reserve fund, and sufficient insurance coverage. The leased assets consist of three parking garages, a performance theatre and an administrative and maintenance hub. The transaction is structured as an asset transfer, with the city's assets valued at $51 million.

With this issuance, direct debt burden is moderate at about $950 per capita and 2.2% of assessed value. Overall debt is high at over $2,800 per capita or 6.6% of market value. General fund debt service expenditures, including this issuance, are a manageable 9% of the fiscal 2005 budget. Future debt needs are minimal with significant pay-as-you-go financing utilized for capital projects.