NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of 'AA' to the following bonds to be issued by Concord, North Carolina (the city):
--$31 million limited obligation bonds (LOBs), series 2014A;
--$6 million taxable LOBs, series 2014B.
The 2014A bond proceeds will be used to provide funds for the construction of a new city hall building and to refund a portion of the 2005 certificates of participation (COPs). The 2014B bond proceeds will refund a portion of the 2005 COPs, for level debt service savings. The bonds are expected to sell via competitive sale on December 4.
In addition, Fitch affirms the following ratings:
--$16.1 million COPs, series 2005 at 'AA';
--$6.2 million refunding LOBs, series 2010 at 'AA';
--Implied unlimited tax general obligation bonds (ULTGOs) at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The lease obligations, which include LOBs and COPs, are payable from installment payments in an amount equal to debt service to be made by the city, subject to annual appropriation. Bondholders are additionally secured by respective deeds of trust on certain fire and police stations, police headquarters, the new city hall, and parking and recreational facilities.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The city's strong management team has been able to maintain a highly liquid balance sheet and ample reserve levels while still funding a substantial amount of paygo capital each year.
STABLE ECONOMY: Concord's economy is not particularly broad and key income metrics are viewed as average by Fitch; however, the city has a history of good population growth and comparatively low unemployment that partially reflects its advantageous proximity to Charlotte.
MANAGEABLE DEBT: The overall debt burden is manageable and is largely driven by overlapping debt of the county. Future debt plans are minimal due to the city's preference and ability to cash-fund capital projects.
APPROPRIATION RISK: The rating on the LOBs and COPs reflects the general credit characteristics of the city and incorporates risk to annual appropriation by the city to make rental payments equal to debt service. Failure to appropriate would result in the loss of certain facilities considered essential to governmental operations, somewhat tempering this risk.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Concord is located in Cabarrus County (GO bonds rated 'AA+'; Outlook Stable by Fitch), roughly 20 miles northeast of Charlotte. The city's population has shown strong growth with a 2013 estimate of 83,506, up over 49% since the 2000 census.
STRONG FINANCIAL MANAGEMENT; EXCEPTIONAL RESERVES
The city's financial operations are strong with very high reserve levels and balance sheet liquidity. Fitch anticipates stable financial results over the near term reflecting management's history of conservative budgeting helping to yield favorable revenue and expenditure results relative to the budget in each of the past six years.
The city ended fiscal 2014 with a general fund operating surplus (after transfers) of $2.7 million, or 3.8% of spending. Unrestricted fund balance at year end remained a strong $37.7 million, or 52.7% of general fund spending. Reserve levels comfortably exceed the city's strict internal reserve policy of at least 35% of spending. In evaluating the city's overall financial flexibility, Fitch also gives credit to the statutory stabilization reserve, which is generally composed of accounts receivable not offset by deferred revenue. This reserve totaled $16.8 million in fiscal 2014, or an additional 23.5% of spending.
The fiscal 2015 budget was balanced without an appropriation of fund balance. Approximately 60% of the budget is funded by property taxes. The city maintained the prior year's property tax rate of $0.48 per $100 in assessed value (AV). The city's tax rate is regionally competitive and well within the statutory $1.50 per $100 AV cap.
TRANSITIONING ECONOMY
Concord was historically the home of Philip Morris, which at one point made up as much as 30% of the city's tax base. Philip Morris closed its plant in Concord in 2009 and its AV has gradually been reduced, contributing much of the tax-base decline between 2010 and 2013.
Alevo, a clean-energy battery manufacturer, recently purchased the 3.5 million square foot former Philip Morris plant for $68.5 million. The company plans to hire 500 employees at the plant by the end of 2015 and 2,500 in the next three years. Alevo has stated plans to invest up to $1 billion in the Concord facility.
The city benefits from its proximity to Charlotte, to which a portion of residents commute for work. The Charlotte Motor Speedway and Concord Mills Mall area, which have become tourist destinations, have led to additional recent economic development, including the opening of a Great Wolf Lodge and Sea Life Aquarium. Charlotte Motor Speedway, the city's top taxpayer at 3.8% of AV, has filed an appeal of their taxable value following the 2012 revaluation. The city has restricted approximately $2 million of fund balance to protect against a possible settlement.
As of September 2014, the city's unemployment rate of 4.1% compared favorably to both the state and national rates of 6.1% and 5.7%. Wealth levels in the city are equal to or moderately higher than the state average.
MANAGEABLE DEBT AND OTHER LONG-TERM LIABILITIES
The city's overall debt burden is moderate at $3,068 per capita and 2.65% of full market value. The majority of the city's overall debt burden is made up of overlapping debt of Cabarrus County; the city's direct debt is much more manageable. With modest debt plans, $46.6 million over the life of the current five-year capital improvement plan, and a preference for cash-funding capital projects, the debt burden is not expected to increase materially over the next several years.
The city's other long-term liabilities are manageable. Most of the city's employees participate in the Local Governmental Employees' Retirement System (LGERS), a cost-sharing multi-employer plan administered by the state. The plan is among the strongest state plans, at 98.5% funded or an estimated 97% when adjusted by Fitch to reflect a 7% discount rate. Total carrying costs for debt, pension, and other post-employment benefits were low at 9.9% of governmental spending in fiscal 2014.
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, Underwriter, Bond Counsel, Underwriter Counsel, and Trustee.
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=916336
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