Fitch Rates Shelby County, Tennessee's $79MM VRDBs 'AA/F1+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'AA/F1+' to Shelby County, Tennessee's (the county) approximately $79,000,000 general obligation (GO) variable-rate demand refunding bonds, (VRDBs) 2008 series B. The 'AA' long-term rating reflects the credit quality of Shelby County. The 'F1+' short-term rating is based on the standby bond purchase agreement (SBPA) issued by Dexia Credit Local, acting through its NY branch.

In addition, Fitch affirms the 'AA' rating on the county's approximately $1.8 billion outstanding GO bonds. In conjunction with this issuance, the county will leave in place a swap agreement with Goldman Sachs Mitsui Marine Derivative Products, L.P., under which the county will pay the counterparty a fixed interest rate and receive a variable rate based on LIBOR. The Rating Outlook is Stable.

The county's 'AA' GO rating is based on a deep, diverse economic base; solid and improving financial reserves; and above-average debt ratios. Historically, financial results have been volatile due to the county's high service provision burden. However, positive results since fiscal 2004 reflect some stabilization of spending pressures in the areas of corrections and health care; management's demonstrated willingness and ability to take necessary actions to rectify shortfalls and close financial gaps; and a slowly improving economy. Fiscal 2007 ended with a sizeable general fund surplus and fiscal 2008 is projected to end with another surplus. Officials are working to close an approximately $30 million fiscal 2009 budget gap. Fitch believes that the use of long-term financial planning should further help reduce fluctuations in financial operations in the future.

The SBPA provides for the payment of the purchase price of tendered bonds during the weekly and monthly rate modes in the event the proceeds of a remarketing of the bonds following a tender are insufficient to pay the purchase price. The SBPA is initially sized to cover the principal amount of outstanding bonds and sufficient interest to cover the Initial Period (May 1, 2008 through May 7, 2008) at the initial interest rate. After the Initial Period, the interest component of the SBPA will be sized to cover 35 days of interest calculated at the maximum rate of 15% per annum, based on a 365-day year. The short-term rating will expire on the earlier of: April 29, 2011, the expiration date of the SBPA unless such date is extended or earlier termination of the SBPA in accordance with its terms. The remarketing agent for the bonds is Morgan Keegan & Company, Inc. The bonds are expected to be delivered on or about May 1, 2008.

Following the Initial Period, the bonds will bear interest in the weekly rate mode. The bonds may be converted to a daily, monthly commercial paper, medium term, or fixed interest rate mode. While bonds bear interest in the weekly and monthly rate modes, interest is payable on the first business day of each month. Holders have the option to tender their bonds for purchase with prior notice while the bonds bear interest in a daily, weekly, monthly, or medium term rate mode.

The bonds are subject to mandatory tender on interest mode conversion dates; on the adjustment date during a commercial paper rate period; upon the expiration or termination of the SBPA; upon SBPA substitution, unless there is rating confirmation that the short-term rating assigned to the bonds will not be changed as a result of the substitution; and upon certain events of default under the SBPA. The bonds are also subject to optional and mandatory redemption.

Bonds proceeds will be used to refund all of the county's GO refunding bonds 1999 Series.

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