Fitch Rates Denison, Texas' Series 2015 COs 'AA-'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has assigned an 'AA-' rating to the following Denison, Texas (the city) bonds:

--$1.865 million combination tax and surplus revenue certificates of obligation (COs) series 2016A.

The COs are scheduled for a March 7 competitive sale. Proceeds from the COs will be used for various waterworks and sewer system capital improvements.

In addition, Fitch has affirmed the following ratings on outstanding city obligations:

--$4.2 million in limited tax general obligation bonds series 2005 and series 2013 at 'AA-';

--$20.0 million in COs, (excluding series 2008) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The COs are payable from a limited ad valorem tax pledge of $2.50 per $100 taxable assessed valuation (TAV) levied against all property within the city and are further payable from a city waterworks and sewer system surplus revenue pledge. The city has no waterworks and sewer system debt outstanding.

KEY RATING DRIVERS

SOUND FINANCES: Generally positive operating performance affords the city with adequate reserves in excess of the sixty-to-ninety days of spending policy target.

LIMITED, GROWING ECONOMY: The limited, but growing economy spans light manufacturing, healthcare, tourism, and retail. Tax base concentration from the city's top 10 taxpayers is moderately high.

MANAGEABLE LONG-TERM LIABILITIES: The city's debt burden is elevated due to sizable overlapping school district debt. Carrying costs, including annual debt service and pension obligations are affordable, incorporating a high level of self-supporting debt.

RATING SENSITIVITIES

FISCAL TREND: The rating reflects Fitch's expectation that the city will maintain a healthy financial cushion and manageable long-term liabilities.

CREDIT PROFILE

Denison is located 75 miles north of Dallas just south of the Texas-Oklahoma border on Lake Texoma. The city's population base is stable, estimated at 23,000 in 2015.

SMALL BUT GROWING ECONOMY

The city is part of the Sherman-Denison MSA and has a small but diverse economic base. The local economy features healthcare, food processing, high technology, light manufacturing, and tourism associated with nearby Lake Texoma.

Taxable assessed valuation (TAV) grew by a compound rate of 5.5% between fiscal 2013 and 2016. Contributing to these gains were the expansions at Texoma Medical Center and Ruiz Foods plant, improving home values, and a recently opened hotel and regional event center. Fitch expects that development reportedly underway will drive additional near-term TAV gains. Spread across a mix of sectors, the city's top ten taxpayers comprise a moderately high 23% of TAV, led by United Health Services at 9%.

The MSA's $24,838 personal income per capita in 2014 falls below the U.S. average of $28,889 for the same period. A low unemployment rate of 3.7% as of Dec. 2015 reflects consistent employment gains over the past several years.

POSITIVE OPERATING PERFORMANCE

The city benefits from a diverse revenue mix. Property taxes contributed 28% to fiscal 2014 revenues, followed by sales taxes at 19%. A trend of positive operating performance reflects steady revenue growth and relatively flat expenditures.

A fiscal 2014 net surplus of $1.1 million (4.9% of spending) contributed to year-end unrestricted reserves of $7 million (30.2% of spending). Unaudited fiscal 2015 results indicate a $1 million net surplus and unrestricted reserves of $8 million (33.1% of spending). The city projects similar fiscal 2016 results and anticipates maintaining ample reserves in compliance with its policy target which Fitch considers reasonable based on fiscal year to date trends and the city's operating performance history.

MANAGEABLE LONG-TERM LIABILITIES

The city's debt burden is elevated at 5.7% of fiscal 2016 market value, due largely to sizable overlapping school district debt. Affordable debt service, equal to 5.1% of fiscal 2015 governmental spending, results from a high level of self-support from the city's water and waste water enterprise fund. Principal amortization is rapid.

Pension benefits are provided through the Texas Municipal Retirement System (TMRS), a statewide, agent multiple-employer plan, and the Firemen's Relief Pension Fund, a single-employer plan. The city's TMRS plan is well-funded at 88.9% as of the Dec. 31, 2013. Funding of the city's Firemen's plan is weaker at an estimated 71.3% assuming a 7% investment return. The combined unfunded actuarial accrued liability is equal to less than 1% of full market value. Carrying costs for the city (pension and debt service costs) totaled a low 10.8% of fiscal 2014 governmental spending. The city does not provide other post-retirement benefits.

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

Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and

Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings, dated Feb. 2, 2016). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published in the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, Lumesis and the Zillow Group.

Applicable Criteria

Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875108

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999813

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999813

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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, CFA, CPA
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Leslie Cook
Analyst
+1-212-908-0507
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, CFA, CPA
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Leslie Cook
Analyst
+1-212-908-0507
or
Committee Chairperson
Barbara Ruth Rosenberg
Senior Director
+1-212-908-0731
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com