Fitch Affirms Chandler, AZ Spectrum ID Bonds at 'AA-'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has affirmed its 'AA-' rating on the $5.35 million outstanding improvement bonds, series 2008 of the Chandler, Arizona Spectrum Improvement District.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by special assessments imposed upon real property within the district assessed for expenses associated with various infrastructure improvements. The bonds have a first lien on assessed parcels, subject only to the lien for general property taxes. In the case of delinquency and no other purchaser at auction, Chandler (the city) must purchase the property and pay any delinquent assessments.

KEY RATING DRIVERS

RATING BASED ON CITY PLEDGE: In cases of delinquent assessment payments, the city must purchase the property at auction and pay delinquent assessments if no other purchaser emerges. In addition, the city may loan money to service the bonds.

CITY FINANCIAL STRENGTH: Fitch rates the city's general obligation (GOs) bonds 'AAA' reflecting its very strong financial position and financial stewardship. The amount of district debt outstanding is relatively small, and the assumption of assessment payment responsibility would not present a challenge to the city given its resources. The three-notch distinction from the city's GO rating reflects the non-essential nature of the district.

NO DELINQUENCIES: The 90-acre tract currently is about half developed, and two property owners are responsible for assessment payments; the city reports no assessment payment delinquencies.

STABLE DISTRICT DEVELOPMENT: Vacancy rates in the business park are reportedly low. The city reports a new office building to open this year, with additional ones in various stages of planning.

HEALTHY ECONOMY WITH GOOD GROWTH PROSPECTS: A highly educated and skilled workforce contributes to the city's low unemployment and attractive growth prospects; income and wealth trends are well above average.

RATING SENSITIVITIES

ECONOMIC AND FINANCIAL PROFILE: The rating is sensitive to shifts in the city's strong local economy and financial management practices.

CREDIT PROFILE

Chandler occupies 70 square miles in southeastern Maricopa County with a 2013 population of approximately 245,628.

CITY PLEDGE SUPPORTS RATING

The city's 'AAA' GO bond rating reflects in part sizable general fund reserves that would be sufficient to either purchase delinquent property at auction or, if the city chooses, loan money to the assessment fund in an amount sufficient to make debt payments in the event of a delinquent assessment payment. The total amount of district debt outstanding is a manageable $5.35 million. The foreclosure process for delinquent properties is rapid, normally taking between 45 and 60 days. In the event no purchaser emerges at the foreclosure auction, the city must purchase the property and satisfy all assessment delinquencies.

SOUND CITY FINANCES

The fiscal 2013 unrestricted general fund balance of $167.2 million represents a very high 83.1% of spending and transfers out. Historically strong financial flexibility has afforded the city the ability to use excess reserves to fund capital and nonrecurring expenditures, including a new city hall, downtown redevelopment, and street improvements.

Five-year projected general fund balances remain substantial and consistent with Fitch's highest rating, reflecting the use of reserves for infrastructure, economic development and debt retirement purposes consistent with the city's historical financial management practices. Fitch views positively the fiscal conservatism of the city's planning, noting that results typically exceed budget expectations.

DISTRICT DEVELOPMENT RESUMING

Spectrum Chandler is a mixed-use development planned with a blend of office, retail, hotel, and business support uses located at the intersection of Price Road (Loop 101) and the Santan Freeway (Loop 202), in the southeast part of the Phoenix metropolitan area. The project consists of 90 acres comprising six lots. The two owners of the district are The Douglas Allred Company (Douglas Allred) and the North Central Group.

Two hotels and five contiguous office buildings reside in the district's Park Place business park. Tenants include International Rectifiers, EDMC, Healthways and Infusionsoft. City officials report a vacancy rate of 8.3%.

Development in the district is underway after a recessionary lull. An additional office building is scheduled to open this spring. Douglas Allred has plans for six additional office buildings and one retail building. The city reports that the buildings will come on-line one at a time as the prior buildings are filled.

The two current owners of the parcels are responsible for 100% of the property assessments, and the city reports no assessment payment delinquencies to date.

HEALTHY EMPLOYMENT BASE ANCHORED IN TECHNOLOGY

Chandler's population has more than doubled since 1990, reflecting regional growth and the city's success in attracting and retaining top technology, manufacturing, advanced business and health services. Anchoring the list of top employers, Intel Corporation is completing a $5 billion fabrication plant expansion and $300 million research and development facility. Recent corporate entrants and expansions have buoyed the city's tax and employment base. Although Chandler is 85% built-out, its attractive workforce, ample capacity within six employment corridors, and strong transportation infrastructure position the city for ongoing growth.

Chandler's unemployment rate of 5.7% as of October 2013 remains well below regional, state and national averages. Local government, public education and health services lend stability to the city's employment base.

The city's median household income represents 140% of state and 135% of national averages. Wealth, as measured by per capita money income, exceeds the state and U.S. level by 28% and 18%, respectively. Chandler's economic metrics remained strong throughout the recession, mirroring the city's employment base strength. Poverty rates approximate about half state and national averages.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816345

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, +1-512-215-3733
Director
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Steve Murray, +1-512-215-3729
Senior Director
or
Committee Chairperson
Karen Ribble, +1-415-732-5611
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, +1-512-215-3733
Director
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Steve Murray, +1-512-215-3729
Senior Director
or
Committee Chairperson
Karen Ribble, +1-415-732-5611
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com