Fitch Rates Grand Prairie, Texas's GOs and COs 'AA+'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA+' rating to the following Grand Prairie, Texas (the city) bonds:

--Approximately $15 million general obligation (GO) refunding and improvement bonds, series 2011; and

--Approximately $7.3 million combination tax and revenue certificates of obligation (COs), series 2011.

The bonds are expected to sell via negotiation on Jan. 18, 2011. Proceeds will be used for street and public safety improvements and to refund a portion of the city's outstanding debt and pay issuance costs.

In addition, Fitch affirms the following ratings:

--Approximately $262.7 million in outstanding GOs and COs at 'AA+'; and

--Approximately $13.9 million in outstanding sales tax revenue bonds at 'AA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The city is located in the center of the Dallas-Fort Worth metropolitan area and benefits from the major transportation corridors that run through its boundaries.

--Although the city's tax base has experienced some modest contraction over the last few years, its taxable assessed valuation remains solid and diverse. Fitch believes prospects for continued growth in the mid to long term are favorable given the expansion of state highway 161.

--Through its conservative financial management and prudent fiscal policies, the city has continued to maintain strong financial reserves, despite revenue pressures associated with the recession.

--Direct debt levels remain moderate while overall debt levels are high due primarily to various overlapping school districts. Overall debt levels are expected to remain elevated given ongoing growth pressures.

KEY RATING DRIVERS:

--Given ongoing growth pressures, healthy reserves will be integral to the city maintaining its strong credit quality.

--Maintenance of manageable debt levels given that capital pressures associated with population growth will continue to pressure the city's overall debt burden.

SECURITY:

The GO bonds are secured and payable from an ad valorem tax levied against all taxable property within the city. The COs are further secured by a limited pledge ($2,500) of the net revenues of the city's water and wastewater system. The sales tax bonds are secured by 1/4 cent sales and use tax, authorized in perpetuity for the city's parks and recreation system.

CREDIT SUMMARY:

Encompassing a narrow, 80 square miles stretch of land that includes portions of four counties, Grand Prairie is located in the center of the Dallas-Fort Worth metroplex, directly between the two major cities and south of Dallas-Fort Worth International Airport. Major transportation corridors such as Interstate Highways 20 and 30 run east-west through city boundaries, and State Highway 161 (SH-161), which is currently under construction, will run north-south through the city and connect to these major highways. A large part of the highway has been completed and is now operational; it is anticipated that both SH-161's main lanes and connecting service roads in the city will be fully completed by 2012.

The city has experienced above-average population growth over the last decade, particularly in the less developed southern portion of the city near Joe Pool Lake. The estimated population for the city is currently over 169,000. Local wealth measures are typically on par with the state's and slightly below those of the Dallas-Fort Worth metropolitan statistical area (MSA). Employment was affected by the national recession as evidenced by an increase in the city's unemployment rate to 8.7% as of October 2010. This rate is higher than the 8% rate for the metropolitan area, but below the national unemployment rate of 9.3% reported for the same period.

The city's financial profile is strong. Through its conservative financial management and fiscal policies, the city has continued to maintain solid financial reserves even through the current difficult economic environment. For fiscal 2009, the city posted a $6 million surplus in the general fund, ending the year with a $29.8 million unreserved fund balance, equivalent to nearly 33% of expenditures. This was achieved primarily through a reduction in spending and enhanced with modest revenue growth. For fiscal 2010, unaudited results point to a modest operating surplus, but an estimated $5 million general fund balance drawdown is planned primarily to create reserves for capital outlays. The fiscal 2011 budget is balanced. The city's policy is to maintain its unreserved fund balance at no less than 50-60 days of expenditures (about 15% of total annual expenditures).

Pledged revenues of the sales tax bonds grew at over double digit levels in 2006 and 2007, but were flat in 2008 and declined 5.4% in 2009. Despite the decline in pledged revenues, debt service coverage remained strong at 2.3 times (x) in fiscal 2009 while maximum annual debt service (MADS) coverage totaled 2.2x.

Direct debt levels remain moderate while overall debt levels are high due primarily to various overlapping school districts. Payout is above average with 66% amortized in 10 years. Along with over $100 million in planned tax-supported debt issuances in fiscal years 2011-2015 and beyond, debt ratios will stay elevated but Fitch believes the debt burden will remain manageable given the city's prudent fiscal management and favorable prospects for tax base growth.

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

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from LoanPerfomance Inc., and Creditscope.

Applicable Criteria and Related Research:

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

'U.S. Local Government Tax Supported Rating Criteria', dated Oct. 8, 2010.

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

Applicable Criteria and 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=564566

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