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Fitch Rates Montgomery County, MD's Special Obligation Bonds 'A+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to the following special obligation bonds of Montgomery County, Maryland (the county):

--$12.5 million special obligation (West Germantown development district) refunding bonds, senior series 2014.

Bond proceeds will be used to refund all of the county's outstanding special obligation bonds, senior series 2002A, series 2004A and series 2004B, and to fund a portion of the debt service reserve account for the series 2014 bonds. The bonds will sell on a negotiated basis on Aug. 13.

In addition, Fitch affirms the following rating:

--Approximately $10 million outstanding (West Germantown development district), series 2002A bonds at 'A+' (pre-refunding).

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the county, payable solely from a senior lien on a special tax on all developed and undeveloped taxable real property within the West Germantown development district (the district). Pursuant to the bond resolution, the county covenants to levy the special tax at a rate sufficient in each year when any bonds are outstanding to pay debt service on the bonds, to replenish the reserve fund for the bonds, if necessary, and to pay the administrative expenses of the district. The bonds are additionally secured by a standard cash funded debt service reserve fund.

KEY RATING DRIVERS

HISTORICALLY STRONG COLLECTIONS: The special tax levy is included as a line item on annual property tax bills, enforced through a tax lien process in the same manner as other county property taxes. Historical collection rates are exceptional, and revenue from the levy is restricted to district purposes.

DELINQUENCY CUSHION: The district tax levy can be increased by 10% to allow for delinquencies, providing an additional cushion. The district is completely built out and no additional debt is anticipated. The value to lien ratio is high.

EXCELLENT ECONOMIC UNDERPINNINGS: Expectations for stable revenue performance are supported by a very stable regional economy anchored by the extensive presence of the federal government and related contracting employment, and marked by consistently low rates of unemployment, a highly skilled labor force, and very high income metrics.

RATING SENSITIVITIES

SUFFICIENT REVENUE AVAILABLE FOR DEBT SERVICE: The rating is sensitive to declines in pledged revenue due to delinquencies and tax base changes. Given recent assessed value (AV) stability, strong tax collections and the county's ability to adjust the tax rate, Fitch believes such risks are unlikely in the near term.

CREDIT PROFILE

The district consists of approximately 666 acres of land in the West Germantown area of southwest Montgomery County, Maryland (general obligation bonds rated 'AAA', Stable Outlook by Fitch). The district was created in 1998 and is served by three exits on I-270, which connects residents to the Capital Beltway and the downtown Washington D.C. area approximately 30 miles southeast. The district is fully developed and consists of 1,385 taxable residential properties.

STRONG TAX COLLECTION HISTORY AND PROCEDURES

Credit strength centers on the exceptional collection history of the pledged special taxes, consistently averaging greater than 99% on a current basis. The special taxes rank on parity with and are collected on the same tax bill as general ad valorem property taxes. Property owners do not have the option of partial payment.

The county covenants to enforce the collection of special taxes through a tax lien sale, which occurs on the second Monday in June as per county code, two weeks prior to the July 1 principal and interest payment date. Revenues derived from the tax lien sale are pledged to bondholders. Since 2003 only 25 accounts out of 1,385 have gone to tax sale.

STRONG SECURITY PLEDGE; NO ADDITIONAL DEBT PLANS

The county can adjust the tax rate to meet annual debt service requirements in response to changes in AV. The county also may increase the special tax levy above the annual requirement by up to 10% to cover delinquencies. The county does not intend to issue additional parity debt on behalf of the district.

The annual tax rate historically has been set at an amount that will generate essentially sum sufficient coverage. The 10% delinquency cushion mitigates concerns regarding non-payments, which typically have been minimal. A cash funded debt service reserve for the series 2014 bonds provides further support and will be sized at the lesser of maximum annual debt service (MADS), 125% of average annual debt service or 10% of par.

DIVERSE AND STABLE DISTRICT TAX BASE

Concentration is minimal within the district, with no single land owner responsible for more than 0.12% of the fiscal 2014 special tax levy. Since the district's inception AV has increased at a compound annual growth rate (CAGR) of 10.5%, but recent gains have been more modest. AV increased by an average annual rate of less than 1% between 2011 and 2014 and was $693.5 million in fiscal 2014. A strong value-to-lien ratio of 55:1 further supports the likelihood of continued timely collection of special taxes.

ECONOMIC PERFORMANCE REMAINS VERY STRONG

Montgomery County borders Washington, D.C. and northern Virginia, and its wealthy suburban economy is fueled by the large U.S. government presence, with depth and diversity added by a strong and expanding biotechnology sector. Leading private employers include Adventist Healthcare (5,669), Lockheed Martin Corp. (5,200) and Marriott International (5,497).

While the rate of job growth within the county has not been robust, it has been steady. The county's unemployment rate historically has been well below state and national averages, and the 4.5% rate for May 2014 remained below the state (5.7%) and U.S. (6.1%) averages. The county's median household income and per capita money income are robust at 183% and 174% of the national average, respectively.

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=844494

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Contacts

Fitch Ratings
Primary Analyst
Evette Caze
Director
+1-212-908-0376
Fitch Ratings, Inc.
33 Whitehall Street
New York NY 10004
or
Secondary Analyst
Kevin Dolan
Director
+1-212-908-0538
or
Committee Chairperson
Steven Murray
Senior Director
+1-512-215-3729
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com