Fitch Affirms Aransas County Navigation District, TX's GOs at 'AA-'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Aransas County Navigation District No. 1, TX bonds in the course of routine surveillance:

--$5.5 million unlimited tax bonds, series 2007, affirmed at 'AA-'.

The Rating Outlook is Stable.

RATING RATIONALE:
--The district's financial profile remains positive, characterized by large annual operating margins which have resulted in considerable fund balances and ample liquidity.
--The district's limited capital needs will be funded with current resources, preserving its modest debt position and average principal pay out rate.
--Prior to recent sluggish property value gains, the construction of waterfront and vacation homes steadily expanded the district's tax base. Prospects for restored growth are positive given the area's popularity for recreational fishing, sailing, and bird-watching.
--The local economy is subject to some economic dependency on tourism as well as coastal vulnerability to storm/hurricane disasters.

KEY RATING DRIVERS:
--The maintenance of large financial reserves is needed to mitigate the potential for weather-related damages to the district's principal assets and remains key to preserving credit quality.
--Fitch expects the district to make progress towards the timely completion of its financial audits and compliance with GASB 45 which requires the reporting of its liability for other post employment benefits (OPEB).

SECURITY:
The bonds are secured by an unlimited annual property tax levy.

CREDIT SUMMARY:
The boundaries of the district are primarily coterminous with Aransas County (GOs rated 'AA-' by Fitch), and the district oversees three local harbors: Cove Harbor, Fulton Harbor, and Rockport Harbor. The Rockport Harbor supports much of the area's recreational activities. Aransas County is located on the Gulf Coast, approximately 30 miles northeast of the city of Corpus Christi. The present county population of just under 25,000 represents an increase of roughly 10% since the 2000 census. The county's TAV growth had been strong before becoming sluggish over the last two fiscal years. The county unemployment rate has risen modestly over the 12 months ending December 2010 to 8% despite notable employment growth of 2% over the same period. Wealth and income indicators are below state and national averages. The area's appeal to fishermen, beachgoers, and birdwatchers has encouraged ongoing development of the tourism industry.

District operations are supported by property taxes and harbor rentals. Financial performance has benefited from annual TAV growth, although recent trends have been weak, as well as increasing rental rates. These revenue trends have enabled the district to reduce its operating tax rate, which is well below the $0.10 per $100 TAV cap. For fiscal 2009, the district produced net revenues before capital contributions of $478,226, resulting in a typically large operating margin of 54%. Furthermore, liquidity position is solid, with fiscal 2009 unrestricted cash and investments equal to nearly two years of operating expenses. Preliminary fiscal 2010 results show about a $652,000 increase in net assets and the fiscal 2011 budget projects a modest $20,000 gain. Fitch has noted that completion of the district's audits has been late by three to five months in recent years.

Direct debt ratios are low at less than 0.2% of market value and $221 per capita. Overall debt per capita and debt as a percentage of TAV are also modest. Principal payout is average with 56% repaid within 10 years. The series 2007 bonds are the district's only debt obligation. Voters approved these bonds for building and repairs of Rockport Harbor's bulkheads and breakwater structures. Due to delays in securing a permit from the U.S. Corp of Engineers for the breakwater project, almost one-third of the bond proceeds have not yet been spent; reportedly, issuance of the permit is imminent. The tax rate impact from the bonds has been less than the projected levy of two cents per $100 TAV. Currently the district has no plans for additional general obligation debt, planning instead to finance its modest future capital needs on a pay-go basis. The district's pension was well funded at 90% as of Dec. 31, 2009. In contrast, Fitch questions the district's compliance with GASB 45 which requires the reporting of its liability for other post employment benefits (OPEB) which should be manageable given its modest staff size of 11.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.

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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