Fitch Affirms and Withdraws Maverick County, TX Limited Tax Debt at 'BB'

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms at 'BB' and subsequently withdraws its ratings on the following Maverick County, TX debt:

--Combination limited tax and revenue certificates of obligation, series 2004;

--Combination limited tax and revenue certificates of obligation, series 2000;

--Combination limited tax and revenue certificates of obligation, series 1998;

--Combination limited tax and revenue certificates of obligation, series 1997;

--Combination limited tax and revenue certificates of obligation, series 1996-B;

--Tax notes, series 2003-A.

The Rating Outlook is Negative.

Fitch withdraws its ratings on all above debt due to the issuer's stated intention not to provide any further financial updates to Fitch. All of the debt listed above, except for series 2004, will be refunded with bonds (not rated by Fitch) which sold on Oct. 15, 2009 and close on Oct. 27, 2009.

The Negative Outlook reflects the potential for added financial pressure on the county's weakened general operations as the result of debt obligations issued by the county's public finance corporation (PFC) for a criminal detention center that may require additional financial support under certain scenarios. The 'BB' rating reflects the county's chronic deficit general fund balance position and poor liquidity. The county has posted negative general fund balances in five out of the last six fiscal years along with thin to negative fund balances in other major funds. Some progress is evident in the county's financial recovery plan, which set aside a portion of property tax revenues for deficit reduction in fiscal 2008 and 2009.

Success of the plan is partly contingent on the timely receipt of community impact payments from the private operator of a new detention center whose own revenues can experience lags in payment. In 2007, the county's PFC issued $43 million in lease revenue bonds (secured by project revenues and not rated by Fitch) for a 688-bed detention facility that opened in December 2008 and houses primarily U.S. Marshalls Services prisoners. The failure of the detention center to attain sufficient inmate capacity could threaten the PFC's ability to make timely base rental payments, further complicating the county's prospects for stabilizing its credit profile. The concurrent restructuring of most of the county's outstanding debt is part of the county's financial recovery plan; although it incurs a high present value loss, the restructuring will provide some needed operations and maintenance (O&M) taxing margin needed to rebuild the general fund balance. The county continues to experience healthy tax base and sales tax growth, although the county's economic base is limited with exposure to economic fluctuations in Mexico. In addition, the area's wealth levels are very low and unemployment has increased in recent months.

Consecutive operating losses, due mostly to delayed federal reimbursements for court costs and public safety spending pressures, led to an accumulated negative fund balance of $3.6 million in fiscal 2006, equal to a very high 33% of spending. Significant budget actions in fiscal 2007 and 2008 reversed the negative trend, reducing the deficit by $928,000 and $431,000, respectively, resulting in a still large but smaller $2.4 million deficit fund balance, equal to 22% of spending. Notably, the fiscal 2009 budget allocated a portion of the O&M tax levy for additional deficit reduction purposes in the general fund and other major county funds. Unaudited fiscal 2009 results point to another $500,000 reduction in the deficit, resulting in a $1.9 million deficit fund balance. In fiscal 2010, this deficit will be further reduced with a $1.5 million reimbursement for pay-go capital outlays from the county's recent tax note issuance. However, the budget also anticipates $400,000 in community impact payments from the private operator of the detention center which opened in December 2008. Delays in such payments would prolong the county's financial recovery plan past its estimated fiscal 2011 timeframe.

Located on the U.S.-Mexico border, Maverick County encompasses an expansive 1,300 square miles; its population has increased steadily during the past decade. Over half of the county's estimated 2009 population of 55,000 live in the City of Eagle Pass, the county seat. Area wealth levels as measured by per capita income are very low. Increasing North American Free Trade Agreement (NAFTA) international trade activity has spurred commercial/retail development, resulting in solid annual tax base growth since fiscal 2004 of almost 8%. However, job growth has slowed in the current downturn, increasing the county's unemployment rate to a high 14% in Aug. 2009.

Additional information is available at www.fitchratings.com.

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