Fitch Rates Greensboro, NC's COPS 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned the following rating:

--$7 million in certificates of participation (COPs), series 2010 'AA'.

The bonds are scheduled to sell via negotiation the week of Sept. 13, 2010.

In addition, Fitch affirms the following ratings:

--$161.2 million general obligation (GO) bonds at 'AAA';

--$10.8 million in special obligation bonds at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The 'AA' rating on the COPS reflects debt service being subject to appropriation and the non-essential nature of the mortgaged property as well as the general credit characteristics of the city.

--Conservative budgeting and cost saving measures have minimized the impact of the economic downturn and depressed revenue environment on Greensboro's financial profile to date.

--Reserves and liquidity remain healthy and serve to temper risk against budgetary pressures that are likely to persist over the next several years.

--Prospects for economic development and diversification remain sound buoyed by Greensboro's university presence, highly educated workforce, and transportation infrastructure anchored by the Piedmont Triad International Airport.

--A declining yet still sizable manufacturing sector has served to limit income metrics and contributed to a high rate of unemployment presently on par with the national average.

--Overall debt levels should remain moderate given the rapid amortization of outstanding principal, manageable additional issuance plans, and the city's continued adherence to conservative debt policies.

--For the special obligation bonds, the rating incorporates the general creditworthiness of the city in addition to very strong coverage from pledged revenues, lack of additional issuance plans, and strong legal provisions.

KEY RATING DRIVERS:

--Fitch expects continued strong financial management will result in balanced operations that preserve existing reserve levels and financial flexibility in the near term.

--For the special obligation bonds, material coverage dilution resulting from the issuance of additional debt is not anticipated and could carry negative rating implications.

SECURITY:

The COPs are being executed and delivered pursuant to a Trust Agreement, dated Sept. 1, 2010, between the Greensboro Center City Corporation (the corporation) and U.S. Bank National Association, the trustee. The proceeds of the COPS will be advanced to the city pursuant to an Installment Financing Agreement (the agreement), also dated Sept. 1, 2010, between the city and the corporation. The COPS evidence proportionate and undivided ownership interests in the installment payments, which are equal to debt service, to be made by the city pursuant to the agreement. The city's obligation under the agreement will be secured by a Deed of Trust, dated as of the delivery date, from the city to the trustee for the benefit of the corporation, granting a first lien on the mortgaged property, which consists of an aquatics center. In the event of non-payment, the trustee is able to foreclose on the mortgaged property. Pursuant to the Trust Agreement, the corporation will assign to the trustee all of its rights under the agreement, including the right to receive installment payments, and the deed of trust, for the benefit of bondholders.

The GO bonds are secured by the city's full faith and credit and unlimited taxing authority.

The special obligation bonds are secured by the city's portion of the proceeds of two 0.5% sales and use taxes (Articles 40 and 42) levied by Guilford County (the county).

CREDIT SUMMARY:

Greensboro is the county seat of Guilford County (GO bonds rated 'AAA' with a Stable Outlook) and the third largest city in the state with a 2009 population of 250,642. Greensboro is located 90 miles northeast of Charlotte at the intersection of a comprehensive transportation network which includes three major interstates with a new beltway under construction and the Piedmont Triad International Airport. The recession has intensified job losses within a manufacturing sector in steady decline due to automation, technology and outsourcing, among other factors. As a result, income growth has lagged and unemployment rose to a peak of 11% in July 2009 before declining moderately to its current level of 10.5% for June 2010. Management anticipates a slow recovery but optimism exists due to a growing presence of high-tech, life sciences, and pharmaceutical companies. The University of North Carolina at Greensboro and North Carolina Agricultural and Technical State University are partnering in the development of the Gateway University Research Park and a joint school of nanoscience and nanoengineering that should have a positive impact attracting high-wage jobs in targeted industry clusters. Fitch notes a number of non-manufacturing businesses recently locating or expanding within Greensboro citing the city's central southeast location, proximity to multi-modal transportation infrastructure, and high quality of life. American Express recently announced plans to construct a major data center on land expected to be annexed by the city that would have favorable tax revenue and job implications for the city and its residents.

Strong financial management and adherence to fiscal policies continue to produce generally stable operating results and sound reserve levels. A third consecutive year of surplus year-end results contributed to an unreserved general fund balance totaling $28.8 million or 11.6% of total spending at the close of fiscal 2009. The city maintains an additional cushion of $14.9 million unreserved fund balance in the debt service fund, $19.2 million in state statute reserves for receivables, and $7.4 million in reserves established by city council for capital spending. Fitch regards these balances, which total $70.3 million or 28% of spending, available for operations if needed. Management expects to incur a net deficit of $1.8 million in fiscal 2010 due to shortfalls in budgeted sales and use tax receipts. The fiscal 2011 budget appropriates $4.9 million in general fund balance, an increase of $700,000 from fiscal 2010. The city has demonstrated very effective expenditure controls in recent years and management is optimistic there is sufficient flexibility within the budget to achieve break-even results without use of the appropriated fund balance.

Debt ratios remain moderate but have trended higher reflecting increased overlapping issuance by Guilford County. Debt service represents a manageable 6.5% of the city's total spending, which is below its 10% policy limit. The 2010-2016 capital improvement plan (CIP) totals $597.5 million which is a 25% decrease from the year prior. Funding sources include $214.6 million in authorized and unissued GO bonds. The current COPs issuance will finance a portion of the roughly $19 million aquatics center with the remaining $12 million being financed through an upcoming GO issuance this fall. The city plans to sell up to $75 million in bonds through fiscal 2012 followed by issuances of approximately $40 million to $50 million every other year. Amortization is rapid (70% of outstanding principal is repaid within 10 years) minimizing risk to additional debt plans. Revenue bonds and enterprise fund pay-go capital spending constitute the largest source of funds in the CIP at $288 million. Fitch rates the city's combined enterprise fund revenue bonds 'AAA' with a Stable Outlook.

Sales and use tax pledged to the special obligation bonds are levied by the county and divided between incorporated municipalities within the county on the basis of ad valorem taxation. The levying of the sales and use tax is within the sole discretion of the county. The city has also covenanted to pledge additional unencumbered non-tax revenues if coverage from pledged sales and use tax revenues falls below 2.0 times (x). Additional parity special obligation indebtedness may be incurred if pledged revenues for the most recent audited fiscal year are not less than the greater of 2.0 times (x) maximum annual debt service (MADS) on parity indebtedness or 1.0x MADS on parity and subordinated indebtedness. Despite a 9.8% decrease in collections in fiscal 2009, coverage remained sound at 5.5x. Through 11 months of fiscal 2010, revenues have increased 4.3% with the city projecting 5.8 coverage for the year.

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 Creditscope, University Financial Associates, LoanPerformance, Inc., IHS Global Insight, Underwriter, Bond Counsel, Underwriter Counsel, Trustee and the US Federal Government.

Related Research:

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

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

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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