Fitch Affirms Montgomery County, MD Special Obligation Bonds at 'A+; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A+' rating on the following special obligation bonds of Montgomery County, Maryland (the county):

--$10.3 million (West Germantown development district), series 2002A.

The Rating Outlook is Stable.

RATING RATIONALE:
--Montgomery County (GO bonds rated 'AAA' with a Stable Outlook by Fitch) is required to levy special taxes on all taxable property within the district in an amount sufficient to pay debt service on the bonds.

--Special taxes are levied and collected in the same manner as general property taxes, and are enforceable through a timely tax lien sale.

--Historical tax collection rates are very strong, and the levy of special taxes results in a 10% cushion to accommodate delinquencies. In addition, there is no significant concentration among district property owners.

--The district is essentially at full build-out and its tax base residential in nature; continued demand for housing within the district is supported by the affluent nature of the community and strength of the regional economy.

--There are no plans to issue additional debt.

--The rating considers the limited nature of the pledge securing the bonds and the exposure to competitive market forces, as the ongoing demand for housing in the district is necessary to support the timely repayment of debt.

KEY RATING DRIVERS:
--Significant deviation in collection rates from historical patterns or diminished demand for housing within the district could pressure the rating.

SECURITY:
The bonds are special obligations of the county, payable solely from a senior lien on a special tax on all developed and undeveloped taxable real property within the district. Pursuant to the bond resolution, the county covenants to levy the special tax at a rate and amount sufficient in each year when any bonds are outstanding to pay debt service on the bonds, to replenish the reserve fund for the bonds, if necessary, and to pay the administrative expenses of the district. Proceeds of the special tax shall be held in trust by the county for the benefit of bondholders, and transferred to the trustee at least five days prior to each debt service payment date.

The bonds are additionally secured by a standard debt service reserve fund (DSRF), equal to the lesser of maximum annual debt service (MADS), 125% of average annual debt service (AADS), or 10% of the initial principal amount of the bonds. The DSRF requirement is funded by cash. Additional bonds can be issued on parity with the senior lien bonds if the assessed value (AV) of all non-delinquent taxable property in the district is 20 times (x) greater than the sum of all outstanding and proposed bonds, although no additional bonding is planned.

CREDIT SUMMARY:
Rating strength centers on the exceptional collection history of the pledged special taxes, consistently averaging greater than 99% on a current basis. The special taxes rank on parity with and are collected on the same tax bill as general ad valorem property taxes. Generally, taxes become delinquent on Oct. 1, but may be paid in installments due Sept. 30 and Dec. 31 for owner-occupied residential properties - ahead of the semi-annual Jan. 1 and July 1 interest payment dates and the July 1 principal payment date. The county covenants to enforce the collection of special taxes through a tax lien sale, which occurs on the second Monday in June as per county code, two weeks prior to the July 1 principal and interest payment date. Revenues derived from the tax lien sale are pledged to bondholders.

The county may increase the levy above the annual requirement by up to 10% to cover delinquencies. In addition, the DSRF balance totals $1.59 million, which provides additional cushion against periods of weak tax collection. The DSRF balance provides at least 1.0x coverage of the annual debt service requirement through fiscal 2026. Final maturity occurs in fiscal 2028 with the annual debt service requirement increasing to $3.1 million which the county plans to fund through the release of cash held in the DSRF. The county does not intend to issue additional parity debt on behalf of the district.

The district is essentially at full build-out. There are approximately 1,509 parcels within the district, of which 1,374 are fully assessed residential properties, 129 are tax-exempt, and six are undeveloped (five of which are developer-owned and constrained against building). Concentration is minimal, with no single land owner representing more than 0.5% of the fiscal 2012 special tax levy. The development district tax bill averages approximately $800 per non-exempt property owner, a relatively small portion of the total tax bill; however, Fitch notes that property owners do not have the option of partial payment. The assessed value (AV) of properties within the district remained essentially unchanged in fiscal 2012 at $669.4 million after declining by 15.4% the prior year. Since the district's inception AV has increased at a CAGR of 15.1%. A strong value-to-lien ratio of 46:1 further supports the likelihood of continued timely collection of special taxes.

The West Germantown Development District was created by the county in 1998 for the sole purpose of facilitating the financing of certain infrastructure improvements through the issuance of tax-exempt bonds. The district covers two adjacent residential communities expanding 671 acres in aggregate, situated in the southwest portion of the county at the intersection of MD route 117 (Clopper Road) and MD route 118 (Germantown Road). The district is served by three exits on I-270, which connects residents to the Capital Beltway and the downtown Washington D.C. area approximately 30 miles southeast. The regional economic base remains strong anchored by the extensive presence of the U.S. government which includes the Department of Health and Human Services, the National Cancer Institute, and the Nuclear Regulatory Commission. According to the county, the biosciences sector has grown to approximately 330 companies and 10,000 high-paying private sector jobs. Unemployment remains low at 4.8% in April 2011 and continues to improve from a peak of 6.2% in January 2010. County resident per capita income is equal to 171% of the national average.

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., IHS Global Insight, and Property and Portfolio Research.

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.

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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