Fitch Affirms New Castle County, DE's GO Bonds at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed its rating on the following New Castle County, DE (county) general obligation (GO) bonds:

--$402.7 million GO bond at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the county backed by its full faith, credit, and unlimited taxing power.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Strong financial management and prudent budgeting practices have led to the maintenance of ample reserves, providing the county with a high degree of financial flexibility.

STABLE TAX BASE: The county's tax base has exhibited a history of moderate, steady growth over the past 10 years.

FAVORABLE SOCIOECONOMIC PROFILE: Economic indicators are sound, with wealth and income levels above-average and an unemployment rate below the national level. Employment is diverse, and benefits from a mix of chemical facilities, research and technology, and a large financial services industry.

MANAGEABLE LONG-TERM LIABILITIES: The overall debt burden is expected to remain low on a per capita basis and moderate on a market value basis. Pension and other-post employment benefits (OPEB) are manageable.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices and maintenance of ample reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The county is the northernmost of the state's three counties and includes the cities of Newark (GO bonds rated 'AA+' with a Stable Outlook) and Wilmington (GO bonds rated 'AA-' with a Stable Outlook). The county's population in 2013 reached approximately 550,000, a 10% increase since 2000.

DIVERSE ECONOMY/STABLE TAX BASE

The county has traditionally benefited from a broad mix of employment, including major chemical facilities, technology and research centers, a sizable government sector, the University of Delaware, and a large financial services industry. Astrazeneca Pharmaceuticals, a major county taxpayer, announced plans to reduce its Delaware workforce by 1,200 employees in 2013. The downsizing resulted in the sale of properties to JP Morgan Chase and Applied Bank. JP Morgan plans to add 500 employees to its workforce in 2014, and Applied Bank recently secured a new tenant, Nemours Foundation, an internationally recognized children's health system. Fitch views these property transfers as positive economic developments.

The county's tax base maintains its trend of stability, evidenced by assessed value (AV) growth of 0.7% and 0.8% in fiscal 2014 and 2015, respectively. Management anticipates level growth going forward, which Fitch views as reasonable given past trends. There is no taxpayer concentration.

Socioeconomic indicators are above-average, with median household income 108% and 122% of the state and national levels, respectively. The county's May 2014 unemployment rate of 5.9% compares favorably to the national average of 6.1% and is just slightly higher than the state's rate of 5.8%.

STRONG FINANCIAL CONDITION

The county's maintenance of high reserves continued in fiscal 2013 although the general fund recorded a minor deficit of $157,371 (less than 1% of spending). The deficit stemmed primarily from revenues coming in under budget by $1.9 million due to negative variances in miscellaneous revenue and charges for services. Partially offsetting this was a $7.4 million positive variance on the expenditure side. The county's unrestricted fund balance was equal to $98.6 million or a strong 44% of spending at the close of the 2013 fiscal year.

STABLE OPERATIONS PROJECTED FOR FISCAL 2014 AND 2015

Management anticipates fiscal 2014 will result in a total general fund balance level equal to or slightly better than fiscal 2013 levels, the majority of which is expected to remain unrestricted. Real estate transfer tax (RTT) is expected to enhance year-end results by increasing approximately $5 million over the prior year.

The fiscal 2015 budget is balanced without the use of reserves. Continued recovery in the RTT ($24.1 million estimated for fiscal 2015 or approximately 15% of total general fund revenue) and union contracts held to a 0% cost-of-living adjustment supported the balanced budget. Management anticipates the fiscal 2015 general fund balance will be level with the prior year, which Fitch views as reasonable given the county's demonstrated sound financial management and control.

LOW DEBT PROFILE/AFFORDABLE CAPITAL NEEDS

Overall debt levels are low at $1,194 on a per capita basis and more moderate at 2.9% of market value. Amortization is average, with 53% of principal retiring within 10 years.

The county's 2015-2020 capital budget totals a reasonable $280 million, which will be funded primarily through bond proceeds. Management intends to issue up to $75 million of GO bonds in late 2014. Proceeds will be used primarily for rehabilitation projects associated with the self-supporting sewer system followed by general capital improvements. The county's overall debt profile is projected to remain low-to-moderate over the review cycle based on current bonding plans.

MANAGEABLE LONG-TERM LIABILITIES

The county maintains a single-employer defined benefit plan that covers substantially all full-time county employees (except for police employees) and part-time school crossing guards. The plan consists of five separate pension plans, with an aggregate funded ratio of 72% as of Jan. 1, 2013. Funding drops to a somewhat weak 68% adjusting for Fitch's more conservative 7% discount rate assumption.

The county also contributes to the Delaware Municipal Police/Firefighter Pension Plan, a cost-sharing multiple-employer defined benefit plan administered by the Delaware Public Employees' Retirement System. The county made the required statutory contribution in fiscal 2013.

OPEB liabilities are manageable. The county funds OPEB on a pay-as-you-go basis, which in fiscal 2013 was $9.1 million, equal to 4% of governmental spending. Total carrying costs (including debt service, pension and OPEB costs) were moderate at 21% of governmental spending in fiscal 2013.

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 the 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=841193

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Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg
Director
+1-212-908-0731
or
Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Barbara Ruth Rosenberg
Director
+1-212-908-0731
or
Committee Chairperson
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com