Fitch Rates Hennepin County, Minnesota's GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following Hennepin County, Minnesota (the county) general obligation (GO) bonds:

--$48,765,000 GO bonds, series 2010B;

--$41,960,000 taxable GO bonds, series 2010C (Build America Bonds - Direct Payment);

--$37,375,000 taxable GO bonds, series 2010D (Recovery Zone Economic Development Bonds - Direct Payment).

The bonds are scheduled for competitive sale on Aug. 24, 2010.

In addition, Fitch affirms its rating on the county's following outstanding bonds:

--Approximately $649.6 million in outstanding GO debt affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Traditionally conservative budgeting practices continue to benefit financial operations resulting in healthy reserve levels.

--The county anchors the Minneapolis-St. Paul metropolitan area and has a diverse tax base and economy, with low unemployment, a stable housing market, and historically growing taxable values, though growth dipped in 2009.

--The county continues to have a favorable debt profile, even with the new issuance, and amortization is above-average.

KEY RATING DRIVERS:

--The county's willingness to control costs to counter revenue shortfalls, particularly reductions in state and federal aid.

--Continued careful monitoring and management of the county's financial exposure to the health and human services operation including the Metropolitan Health Plan and the Hennepin Healthcare System, Inc. (formerly, Hennepin County Medical Center).

SECURITY:

The bonds are general obligations of the county and secured by the county's full faith and credit and unlimited taxing power.

CREDIT SUMMARY:

Hennepin County, home to Minneapolis, is the largest and wealthiest county in Minnesota, featuring resident wealth levels at 132% of the state. The local area economy, anchored by the University of Minnesota and several hospitals, continues to outperform the state and nation. The county's labor force is expanding and its unemployment rate of 6.6% as of June 2010 is down from 8.4% the prior year, and is below that of the state and nation. Despite a recent slight contraction, the tax base remains strong and diverse with an estimated market value of $142 billion for 2009 and the 10 largest taxpayers accounting for a low 2.5% of the county's 2009 tax capacity.

Conservative budgeting has led to the maintenance of ample reserves across funds. After negative results in 2008, the county ended 2009 with a larger than expected general fund operating surplus of $10.3 million due to implementation of cost controls in all departments and reduced employee expenses. The county's undesignated general fund balance for fiscal year end 2009 was a strong $115 million or 22.5% of spending providing the county with ample financial flexibility. Surplus operations are also evident in the funds outside of the general fund approximating $72 million for 2009. For 2010, officials project a strong operating surplus in the general fund and human services fund due to revenues coming in stronger than budgeted and continued monitoring of expenses. All other funds are expected to record breakeven operations or modest surpluses. The county has carefully managed its potential financial exposure to the medical center, which in 2007 changed from a county department to a public corporation subsidiary of the county, called Hennepin Healthcare System, Inc. (HHS). Although the county has pledged and budgeted for a defined amount of financial support for HHS, the full amount of the pledged support has not yet been required.

The county's direct debt levels are low, measuring just 0.7% of the substantial tax base. Overall debt burden is more moderate, at 3.7%, reflecting significant borrowing by underlying jurisdictions. Debt position is expected to remain manageable, given the above average amortization (64% in 10 years) and the scaling back of the capital improvement program, which the county undertook in response to slowing tax base growth.

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

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Public Financial Management, Inc., Creditscope, UFA, LoanPerformance, Inc. and IHS Global Insight.

Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 16, 2010.

--'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 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.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

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=492470

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