NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an initial 'AA' rating to the following general obligation (GO) bonds of Warren County, VA (the county):
--$40.5 million special obligation school financing bonds, series 2014, issued by the Virginia Public School Authority.
Bond proceeds will be used to finance the construction of a new middle school. The bonds are expected to sell via competitive sale during the week of November 17.
In addition, Fitch upgrades the following ratings:
--$1.7 million lease revenue bonds (LOBs), series 2004B, issued by the Front Royal & Warren County Industrial Development Authority (IDA) to 'AA-'from 'A+'.
The Rating Outlook is Stable.
SECURITY
The special obligation school financing bonds are GOs of the county for which its full faith and credit are irrevocably pledged.
The LOBs are limited obligations of the Town of Front Royal & Warren County IDA payable from lease rental payments from the county, subject to annual appropriation by the county's board of supervisors. Bondholders are additionally secured by respective deeds of trust on two county high schools.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The 'AA' GO rating reflects the county's strong financial profile including revenue and spending flexibility as well as robust reserves. The county continues to diversify its own economy and benefits from the active regional economy of northern Virginia. These credit strengths are important mitigants to the tax-base concentration driven by Dominion Virginia Power.
STRONG REGIONAL ECONOMY: Immediate employment opportunities within the county are somewhat limited, but many residents commute throughout the broader northern Virginia job market, supporting historically low levels of unemployment. Per capita income and median household income are above the national average.
SOUND FISCAL POSITION: The county has been able to finance much needed capital projects while still maintaining strong liquidity and reserve levels.
MANAGEABLE LONG-TERM LIABILITIES: Limited intermediate-term debt issuance will allow the county to maintain the current moderately high debt position. Long-term obligations related to pension and retiree health benefits do not pressure the credit.
APPROPRIATION RISK: The rating on the LOBs reflects the general credit characteristics of the county and incorporates risk to annual appropriation by the county 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 county's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Warren County is located in the Shenandoah Valley in northwestern Virginia, about 70 miles southwest of Washington DC. The county's total land area is 219 square miles, with a 2013 population of 38,699.
EXPANDING REGIONAL ECONOMY
The county's location in the broader Northern Virginia economy is a key strength, and is evidenced by the county's low unemployment and improving wealth indicators. The county's own employment base is led by retail trade and health care. The health care sector is anchored by Warren County Hospital, the county's third largest employer. The retail sector is expected to continue to grow with the expansion of the Crooked Run and Riverton Commons retail centers.
Dominion Virginia Power, a subsidiary of Dominion Resources, Inc. (Fitch Issuer Default Rating of 'BBB+' with a Stable Outlook), is in the process of constructing a new power plant facility in Warren County. The county expects the power plant to be fully operational by 2015, at which time it will be the county's largest taxpayer representing approximately 20% of taxable assessed valuation.
County demographic indicators remain reasonably strong. Employment in the county has been steady in recent years, with an unemployment rate of 5.5%, as of September 2014, slightly below the nation's 5.7%. The majority of county residents out-commute for employment, mostly to northern Virginia, providing some diversification to the county's immediate economy and tax base. Median household income and per capita money income are above the national average.
SOUND FISCAL POSITION; BUDGET FLEXIBILITY
The county's reserve levels are expected to remain above the county's conservative fund balance policy, despite paygo capital spending. The county maintains a policy that unassigned fund balance should be at least 15% of the county and school board's operating budget (inclusion of the school board's operating budget is a more conservative approach).
Unaudited estimates for fiscal 2014 anticipate a small draw mostly for capital. Unrestricted fund balance remains ample at $16.7 million, or 22.4% of spending. In addition to general fund reserves, the county also has $6.9 million of uncommitted reserves in their special projects fund, which would be available to fund general operations if needed.
The fiscal 2015 budget includes an appropriation of fund balance of $848,500 (1.3% of spending). The budget includes a $5.1 million increase in total local revenues, although this is largely due to the $3 million in anticipated property tax revenues from Dominion Power.
Fitch views the county's revenue and spending flexibility as important offsets to the tax-base concentration. The county remains regionally competitive from a tax-rate perspective and is not capped as to rate or levy for operations. Management is afforded spending flexibility given that Virginia is a right to work state.
MODERATE LONG-TERM LIABILITY BURDEN
The total debt burden is moderately high at $4,556 per capita and 3.7% of market value. Principal amortization is below average at 42.2% retired in the next 10 years. The county's five-year capital improvement plan totals $70.3 million and does not identify any debt needs past the current issuance.
All county employees participate in the Virginia Retirement System (VRS), an agent and cost-sharing multiple employer defined benefit pension plan administered by the Commonwealth. The county portion of the VRS is well-funded at 76.4%; the VRS assumes an investment rate of return of 7%. The county's unfunded actuarial accrued liability (UAAL) as a percentage of market value is a low 0.2%.
Other post-employment benefits (OPEB) costs represent less than 1% of governmental spending and the UAAL is less than 1% of market value. Carrying costs for debt service, pension and OPEB are expected to remain moderate and totaled 15.1% 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, Virginia Employment Commission, 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=919637
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