Fitch Rates Forsyth County, NC's $200.9MM GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Forsyth County, North Carolina (the county's) general obligation (GO) bonds:

--$14.2 million GO public improvement series 2010A;

--$41.2 million GO public improvement series 2010B;

--$75.8 million taxable GO public improvement (Build America Bonds) series 2010C;

--$26.4 million taxable series GO public improvement (Qualified School Construction Bonds) series 2010D;

--$43.3 million GO refunding series 2010E.

The bonds are expected to sell Aug. 18 via negotiation.

In addition, Fitch affirms the following ratings:

--$396 million in outstanding GO bonds at 'AAA';

--$65 million certificates of participation at 'AA+';

--$15 million limited obligation bonds at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Forsyth County has maintained moderately low debt levels, in spite of sizable capital needs. Continued population and assessed valuation growth are projected to support a manageable debt burden.

--The county's diversifying employment base reflects the notable growth in the technology, healthcare, education, and finance sectors, which collectively are supplanting the traditional manufacturing base.

--Ample reserve levels and sound financial policies are underscored by strong financial management and planning.

KEY RATING DRIVER

--Growing capital needs, particularly for educational requirements, may pressure available resources.

SECURITY:

The GO bonds are secured by a pledge of the full faith and credit and taxing power of the county. The certificates of participation and limited obligation bonds are secured by lease payments subject to annual appropriation by the county and by a lien on essential government assets.

CREDIT SUMMARY:

Located in the Piedmont region in central North Carolina, Forsyth County is one of the state's major commercial and industrial centers. A diverse economy underpinned by a significant medical and biotechnology presence has superseded the economy's historical concentration in manufacturing, textiles, and tobacco. The county has leveraged two major medical facilities (Wake Forest University Baptist Medical Center, employing 11,800, and Novant Health, which employs 7,600 at three area hospitals), as well as a number of local universities to create the Piedmont Triad Research Park (PTRP), the state's second largest biotechnology cluster. A recently announced $87.9 million investment will rehabilitate a former R.J. Reynolds facility for inclusion in PTRP; expansion over the next two decades at the PTRP is expected to generate an additional 5.7 million square feet of construction and 27,000 jobs. The broad-based attractiveness of the county for commercial investment is illustrated by the recently announced expansion by Caterpillar Inc., with a planned $426 million capital investment. The recently high unemployment rate has started to moderate somewhat to 9.2% in May, 2010, below the state's average and on par with the national average. Income levels are slightly above the state's and at the national averages, and the county's cost of living is well below-average for urban areas.

Effective financial management and planning consistently yields ample reserves and financial flexibility. The unreserved general fund balance at the end of fiscal 2009 was a strong 26% of general fund spending. The county anticipates that final fiscal 2010 results will show an increase in reserves attributable to an $8 million repayment by Dell Inc. of county incentives, due to the company's anticipated closing, as well as a $12 million increase to funds designated to offset future debt service costs. The fiscal 2011 budget incorporates the modest expenditure reductions initiated in fiscal 2009 and incorporates the judicious use of fund balance. Following several years of anticipated growth in the designation for future debt service, the county expects to draw down its unreserved fund balance closer to the 16% policy level, using the balance for debt service and one-time capital costs.

Debt levels are moderately low and are projected to remain so. Overall debt equals 2.6% of market value and $2,473 per capita, and amortization is above average at 55.6% in 10 years. The $532 million county CIP through fiscal 2021 includes $105 million of school projects that are subject to reexamination prior to the next bond referendum. The CIP total is well above the $389 million of fiscal years 2010?2020, although changes in project timeframes have historically resulted in large variances among CIPs. The county projects that debt service will rise as high as 14.7% of spending after allowing for offsetting by lottery proceeds and reach 18.1% assuming full implementation of planned CIP financing. This is above the upper limit of the county's informal goal of 10%?15%; the county is considering increasing its policy in the future. Fitch notes that although this fixed cost is projected to be above average as early as fiscal 2011, at 12.8%, it does not appear that it will impede the county's flexibility or necessitate the utilization of reserves.

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 85% rated at or above 'AA-' and 1% 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.

Applicable criteria available on Fitch's web site at 'www.fitchratings.com':

'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.

'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Additional information is available at 'www.fitchratings.com'.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492466

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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