NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the following Hospital Authority of Hall County and the City of Gainesville, GA (the authority) Northeast Georgia Health System, Inc. (NGHS) Project bonds:
--$196 million revenue anticipation certificates, series 2014A.
The series 2014A certificates are expected to price the week of Nov. 10 through negotiation. Proceeds will be used to refund a portion of previously issued debt and cover costs associated with the construction and equipping of NGHS healthcare facilities. In addition to the series 2014A bonds, the authority expects to issue approximately $135.5 million in series 2014B/C certificates backed by a pledge of NGHS gross revenues and a leasehold mortgage on certain NGHS properties.
In addition, Fitch affirms the following rating:
--$250 million revenue anticipation certificates series 2010B at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The series 2010B and 2014A certificates are backed by a pledge of NGHS gross revenues and a leasehold mortgage on certain NGHS properties. To the extent that these funds are insufficient, the county is obligated pursuant to intergovernmental contracts to provide for the payment of debt service on the certificates.
The obligation of the county to make payments under the contracts is absolute and unconditional. The county has pledged to levy an annual tax if necessary, subject to a statutory limit of seven mills, to provide sufficient funds to make all payments required under the contracts.
KEY RATING DRIVERS
COUNTY BACK-UP PLEDGE: The 'AA-' rating on the certificates reflects the pledge of the county to support debt service on the certificates if authority revenues, derived from NGHS payments, are insufficient. Notification and payment timing requirements set out in the intergovernmental agreements support timely payment of debt service.
IMPROVED FINANCES: County finances have stabilized and strengthened in recent years. Reserves are strong and are expected to remain at solid levels, even with some additional projected draw downs.
LIMITED ECONOMY; TAX BASE IMPROVEMENT: The county's taxable assessed value (TAV) saw annual declines in the last four years. The decline lessened in fiscal 2014 and TAV returned to strong growth for fiscal 2015. County unemployment is below the state average, but higher than the national rate. Per capita income levels are below average.
LOW DIRECT DEBT; WEAK PENSION FUNDING: Overall debt levels and carrying costs, including required pension payments, other post-employment benefits (OPEB) and debt service, are low. County pension funded levels are very weak. The county had been underfunding its annual required contribution (ARC) in recent years. However, the ARC was fully funded in fiscal 2013 and the county reports full funding for fiscal years 2014 and 2015 (budgeted).
SOUND HOSPITAL CREDIT PROFILE: The 'AA-' rating on the certificates incorporates NGHS' 'A' revenue bond rating, reflecting NGHS's consistently strong operating cash flow, high debt burden, and strong market position. Fitch expects that debt service will be supported by NGHS's operations.
RATING SENSITIVITIES
FINANCIAL STABILITY: The county's history of maintaining adequate reserves while addressing operating and capital needs indicates continued rating stability. A return to stronger reliance on reserve draws for budget balance could pressure the rating.
SHIFTS IN NGHS CREDIT PROFILE / COUNTY LIQUIDITY: The current rating on the certificates reflects NGHS' sound credit profile and adequate county governmental funds liquidity supporting its back-up pledge to the certificates. Negative shifts in these factors could pressure the rating.
CREDIT PROFILE
Hall County is located in northeast Georgia approximately 50 miles from Atlanta. The county's 2013 population, 187,745, represents strong growth of 35% from 2000, as compared to the state (22%) and nation (12%).
IMPROVED FINANCES
Following general fund operating deficits (after transfers) in fiscal years 2008 and 2009, the county implemented expenditure cuts and some revenue enhancements to return to operating surpluses in fiscal years 2010 through 2012. A $7.8 million operating surplus in fiscal 2013 led to a general fund unrestricted balance of $22.2 million, or 26.2% of spending. Fiscal 2013 revenues included moneys received from the sale of a county jail facility ($7.4 million), but the county realized a modest surplus even net of these moneys.
Unaudited figures for fiscal 2014 indicate a modest draw on reserves ($519 thousand or 0.6% spending) which is considerably less than the budgeted draw down of about $4 million. The fiscal 2015 budget assumes a $3.2 million draw down, but management has indicated that this is a conservative estimate, and the actual deficit will likely be lower. The county's trend of actual results outperforming budgeted expectations supports this. The county's fund balance policy was recently revised to require maintenance of an unrestricted balance at 10% to 20% of spending, versus the prior policy of 5% to 15%. Fitch believes strong reserve levels are needed to cushion against the county's exposure to economically sensitive sales taxes.
After property taxes (39% of fiscal 2013 general fund revenues), sales taxes are a key revenue source for the county (23% of fiscal 2013 revenues). Weakened sales tax revenues stabilized in fiscal 2011 and saw strong growth in fiscal 2012 (11%). Sales tax revenues in fiscal years 2013 and 2014 were negatively affected by state legislation that eliminated sales tax on vehicle sales effective March 2013 and instituted a separate title ad valorem tax (TAVT). Sales tax revenues declined by 1.3% in fiscal 2013 and grew by 1.1% in fiscal 2014. Collections for fiscal year 2014 of combined TAVT and sales tax revenues show strong growth versus prior year combined collections.
ASSESSED VALUE IMPROVES
Assessed values grew rapidly over the past decade until annual declines began in fiscal 2011. TAV decreased by about 15% from fiscal 2010 to fiscal 2014. After two years of annual 6% declines, the TAV decline lessened to 1.5% in fiscal 2014 and grew strongly (6.5%) in fiscal 2015, reflecting a property revaluation. The county is expecting continued growth in the near term due to ongoing economic development, including the Northeast Georgia Medical Center expansion.
The county tax base is diverse with the top taxpayer (Wrigley Manufacturing Company) at 1% of TAV. The top 10 taxpayers (largest related to utilities, communications, manufacturing, and agriculture sectors) comprise 4.4% of TAV in fiscal 2013. The county's property tax millage rate was held steady at 6.25 per $1,000 of TAV in recent years, but was reduced to 5.9 for fiscal 2015 due to strong TAV growth.
LIMITED ECONOMY; UNEMPLOYMENT IS BELOW STATE AVERAGE
County unemployment has historically been below state averages. The county rate (6.7% as of August 2014) remains below the comparable state average (8.3%), and is close to, but in excess of the national average (6.4%). The county's economy, historically manufacturing and agricultural based, has benefited from continuing medical and health sector growth, anchored by Northeast Georgia Medical Center, which is the largest employer (about 5,200 employees). Other leading employment areas include poultry farms and food processing.
MODEST DEBT LEVELS
Overall county debt remains low with the majority of the capital projects funded by revenues from a voter-approved 1% special local option sales tax (SPLOST) dedicated to capital needs. The fiscal year 2013 county debt burden, exclusive of the contingent NGHS debt which is expected to be self-supporting, is low at $1,397 per capita and 1.7% of market value. Amortization is moderate with about 51% maturing in 10 years. No additional tax-supported debt issuance is expected in the near term. Overall county fiscal year 2013 carrying costs including debt service, pension ARC and OPEB actual payment are manageable at about 9.6% of governmental spending.
The current SPLOST VI is projected to generate about $152 million (down from $240 initially estimated) through June 2015, when it expires. While collections are far less than initially projected, revenues will fund the majority of the county's identified needs and keep county debt levels low. Voters will be presented with a SPLOST VII proposal in March 2015. Five previous SPLOST referendums have been approved by voters, with the current SPLOST VI approved by 62% of county voters in 2009.
While voters have supported past referenda, a failed SPLOST VII vote could pressure county finances, as the county depends on SPLOST revenues to fund capital needs and support county enterprise funds.
WEAK PENSION FUNDING
The county's retirement plans include an Association of County Commissioners of Georgia (ACCG) multi-employer defined benefit plan which was closed to new employees in 1998 and an ACCG defined contribution plan. The defined benefit pension funded level is very low at 35.9% as of Jan. 1, 2012 or 33.2% using Fitch's more conservative 7% discount rate estimate. Since fiscal year 2010, the county has been contributing less than 100% of the actuarially required contribution (ARC) to provide budget relief. However, funding in fiscal 2013 exceeded the ARC (112%). The county has indicated that the ARC was fully funded in fiscal 2014 and that the fiscal 2015 budget provides for full ARC funding. Furthermore, the plan's unfunded liability ($31 million) is low relative to 2013 market value, at about 0.21%, easing credit concerns.
CERTIFICATES BACKED BY COUNTY PROPERTY TAXES, IF NEEDED
As authorized under Georgia Hospital Law, the county, pursuant to intergovernmental agreements, is required to levy up to a total seven-mills to pay debt service on the 2010B and 2014A certificates if authority revenues are insufficient. Upon the authority's inability to provide sufficient funds for debt service on or before the 15th business day prior to the debt service due date, the authority must notify the county on the following business day. The county's obligation to pay debt service when notified is absolute and unconditional and payment must be made five days prior to the debt service due date, adequate time to ensure timely payment, and may be made from any legally available county revenues.
The county's fiscal 2015 TAV of $6.4 billion generates about $44.5 million for seven mills, which covers maximum annual debt service (MADS) on the 2010B and 2014A certificates 1.6 times (x). The county has never levied any of the seven-mills for debt service. The intergovernmental agreements limit the amount of debt covered to $450 million and the total outstanding following issuance of the 2014A certificates will be just under this amount. The 2010B certificates benefit from a debt service reserve fund, cash funded at maximum annual debt service.
The 2014A certificates do not have a debt service reserve fund.
STABLE HOSPITAL CREDIT
The 'A' rating on the series 2010B and 2014A certificates reflects NGHS' history of strong operational profitability and good market position. Fitch's credit concerns include a heavy debt burden and mixed liquidity metrics which should improve once the new facility is completed and capital spending decreases. For additional details, please refer to Fitch Rates Northeast Georgia Health System's Series 2014B/C Revs 'A'; Outlook Stable dated October 23, 2014 and available at www.fitchratings.com.
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=909715
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