Fitch Places Bernalillo County, NM Bonds on Rating Watch Negative

AUSTIN, Texas--()--Fitch Ratings has placed the following Bernalillo County, NM bonds on Rating Watch Negative:

--$120.5 million general obligation (GO) bonds currently rated 'AAA';
--$135.7 million gross receipts tax (GRT) revenue bonds currently rated 'AA+'.

SECURITY

The GO bonds are secured by an unlimited annual property tax levy on all taxable property within the county. The GRT bonds are secured by the county's 1st 1/8th GRT for general purposes and the county's 2nd 1/8th GRT for general purposes, excepting $1 million annually (at the rate of $83,333 per month) for indigent care.

KEY RATING DRIVERS

INVESTMENT PRACTICES IMPACT LIQUIDITY: The Negative Watch reflects the county's substantially reduced cash flow margin due to increased investments in long-term securities. The shortfalls developed with a deviation from past investment practices by the current and past county treasurers. The county's investments were technically compliant with its policy which was silent on maximum maturity for short-term investments.

CASH FLOWS THINNING: The county's current year cash flows show positive but thin cash balances for the remaining five months of fiscal 2014. In order to bolster current year cash flows, the county sold a portion of its investments before maturity, resulting in modest losses.

STATE AUDIT UNDERWAY: A special audit of the county treasurer's office has been ordered by the New Mexico state auditor. The special audit, to be conducted by an independent audit firm, will make recommendations to improve the county treasurer's internal controls and management related to investment transactions.

PORTFOLIO AND MANAGEMENT RESTRUCTURING: The county commission has selected a third-party independent investment advisor to help the county restructure its investment portfolio in a manner that is better aligned with its cash flow needs. A new investment policy was also recently adopted which imposes tighter restrictions on investment durations. The policy also increases the required qualifications of the presently vacant county investment officer which manages and monitors the county's portfolio of assets in cooperation with the elected county treasurer.

OTHER CREDIT FACTORS STABLE: The county maintains moderate debt levels with rapid amortization and a broad economy centered around the city of Albuquerque. The county's operating performance remains strong, reflected in the maintenance of high, albeit illiquid, unrestricted fund balances. The fiscal 2012 unrestricted general fund balance totaled 87% of spending. The current year budget is balanced and based on conservative revenue projections.

RATING SENSITIVITY:

The Negative Rating Watch reflects a heightened probability of a downgrade over the next few months. While it appears the county has taken swift corrective action, Fitch is assessing the county's cash management practices' impact on the overall credit profile.

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, and 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=820932
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 787801
or
Secondary Analyst
Rebecca Moses, +1-512-215-3739
or
Committee Chairperson
Managing Director
Jessalynn Moro, +1-212-908-0608
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 787801
or
Secondary Analyst
Rebecca Moses, +1-512-215-3739
or
Committee Chairperson
Managing Director
Jessalynn Moro, +1-212-908-0608
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com