Fitch Rates Cary, North Carolina's GOs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following rating to , North Carolina's (the town) bonds:

--$14.6 million general obligation (GO) refunding bonds, series 2010B at 'AAA'.

The bonds are scheduled to price competitively Sept. 14.

In addition, Fitch affirms the following ratings:

--Approximately $177.7 million GO bonds, including the bonds to be refunded, at 'AAA';

--Approximately $30.7 million in lease obligation bonds at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Financial flexibility is exceptional, including very high reserve levels and continued cash funding of capital projects.

--The overall debt burden is moderate while the town continues to adhere to conservative financial and debt policies.

--The town's economy is strong and has excellent long-term potential for continued growth and development, combining the stability of the nearby state capital and a large higher education sector with the specialized high-technology industry.

--The rating for the lease obligations also incorporates debt service being subject to annual appropriation. Appropriation risk is largely offset by the essential nature of the mortgaged properties, which the trustee may foreclose upon if annual debt service payments are insufficient or in the case of non-appropriation.

KEY RATING DRIVER:

--The key rating driver will be maintenance of structural balance over the long term, as a continued trend of expenditure needs outpacing revenue growth could strain financial operations.

SECURITY:

The GO bonds are secured by the full faith, credit and taxing power of the town.

The lease obligations, which include certificates of participation (COPs) and limited obligation bonds (LOBs), evidence proportionate undivided installment payments to be made with respect to the Installment Financing Agreement, dated October 2002, between the Cary Economic Development Corp. (the Corp.) and the town, as supplemented by the First Supplemental Installment Financing Agreement, dated May 1, 2010. As further security for its obligations under the agreement, the town has executed a Deed of Trust, amended by the First Supplemental Trust Agreement dated May 1, 2010, granting a lien on the mortgaged property. The Corp. has assigned all of its rights in the Deed of Trust and the Agreement to the Trustee. The town is required under the agreement to make installment payments in an amount sufficient to meet debt service on the bonds included in the indenture. Debt service, subject to annual appropriation, is payable solely from amounts payable by the town under the agreement. The town may make its installment payments under the contract from any source of funds legally available to it. If installment payments are not made in an amount sufficient to meet debt service, the trustee may foreclose upon the mortgaged properties.

CREDIT SUMMARY:

Located in central North Carolina, the town's economy benefits from a strong commercial presence within the town's limits, including SAS Institute, Inc., the world's largest privately held software company, as well as nearby Raleigh, the state capital, and Research Triangle Park, a campus of 17 biotechnology firms with roughly 42,000 jobs. Several colleges and universities, as well as major health care facilities, add depth and breadth to the employment base. The town's unemployment rate has decreased moderately to 6.2% for June 2010 from 6.9% a year prior and remains well below state and national averages. Reflecting the highly specialized nature of the town's employment base, income levels are well above state and national averages.

Financial management is very strong, as evidenced by high fund balances, stringent fiscal policies and conservative budgeting. Audited fiscal 2009 results show a $7.6 million surplus. While the unreserved fund balance increased in value to $56.8 million, it declined slightly as a percentage of total spending to 40.6% from 43.2% a year prior due to expenditure growth outpacing revenues. Although financial flexibility remains robust, the town will need to balance increases in spending with revenue growth over the long term to maintain structural balance. Unaudited fiscal 2010 results indicate a sizeable $11.5 million surplus while the fiscal 2011 budget is structurally balanced with a moderate $1.2 million appropriation of fund balance for one-time capital needs.

Overall debt levels are moderate with above-average amortization. The town maintains an annual 11-year capital improvement plan (fiscal 2011-2021) which currently totals $613.4 million. Roughly 70% of the plan is for water/sewer needs. The town continues to fund all capital projects through pay-go and then reimburse itself for a portion of the costs through debt proceeds. No additional general government debt is planned although water/sewer debt will be issued in the next few years.

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. and IHS Global Insight.

Related Research:

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

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.