Fitch Rates North Carolina's $199MM Limited Obligations 'AA+'

NEW YORK--()--Fitch Ratings assigns an 'AA+' rating to the following limited obligation bonds of the State of North Carolina:

--$198.895 million limited obligation refunding bonds, series 2014B

The bonds are expected to be sold via competitive bid May 1, 2014.

Fitch also affirms the 'AA+' rating on $2.5 billion in outstanding appropriation-backed debt issued by the state and its Infrastructure Finance Corp.

The Rating Outlook is Stable.

SECURITY

The bonds are a limited obligation of the state of North Carolina, payable solely from state appropriation. Appropriation debt is legislatively authorized and centrally managed, with approval required by the treasurer and council of state, which includes all statewide elected officials. Bondholders have no lien on or security interest in projects.

KEY RATING DRIVERS

LINK TO STATE GO RATING: The 'AA+' rating on debt backed by the State of North Carolina's appropriation commitment, one notch below the state's GO bond rating, reflects the state's strong general credit standing, as well as the sound structures and centralized oversight of appropriation debt.

LOW LIABILITIES: The state has a low-to-moderate debt burden and strong debt management practices, including an affordability planning process. Over time the state has become more reliant on appropriation debt. Pension funding is among the strongest of the states.

WELL-MANAGED FINANCIAL OPERATIONS: Financial operations are conservative with a history of prompt action when necessary to maintain budget balance. The fiscal 2011 - 2013 biennial budget met expectations including funding of reserves that were utilized during the recession. The state passed a balanced budget for the fiscal 2013 - 15 biennial budget, incorporating tax reform that will absorb near-term revenue growth associated with economic expansion.

DIVERSE ECONOMY: The economy is expected to grow and diversify in the long run, but was severely affected by the recession. Although initial recovery was slow, recent growth trends have improved.

RATING SENSITIVITIES

The rating is sensitive to significant changes in the financial or debt profile or a fundamental change in the economy, inconsistent with maintenance of a 'AAA' GO rating, to which this rating is linked.

CREDIT PROFILE

LINK TO GO RATING

The security for the limited obligation bonds will be annual payments made by the state, subject to legislative appropriation. The governor covenants to include debt service payments in the budget. Appropriation debt is legislatively authorized and approved by the council of state, comprised of all statewide elected officials, including the treasurer, who oversees debt issuance. A statutory debt affordability planning process encompasses appropriation debt, and by practice the state budgets one line item for GO and appropriation debt service. The current offering refinances outstanding limited obligation bonds for debt service savings.

North Carolina's 'AAA' GO bond rating reflects its moderate debt burden, conservative financial operations and long-term prospects for continued economic expansion and diversification. For further information on North Carolina's GO rating, please see Fitch's rating action commentary from April 4, 2014, "Fitch Rates North Carolina's $319MM GO Bonds 'AAA,'" available at www.fitchratings.com.

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

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

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

--'U.S. State 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. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827141

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Contacts

Fitch Ratings
Primary Analyst
Karen Krop, +1 212-908-0661
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Kim, +1 212-908-0241
Director
or
Committee Chairperson
Laura Porter, +1 212-908-0575
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Karen Krop, +1 212-908-0661
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Eric Kim, +1 212-908-0241
Director
or
Committee Chairperson
Laura Porter, +1 212-908-0575
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com