AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings to the city of Lewisville, Texas' general obligation (GO) debt:
--$1.6 million GO refunding bonds, series 2011 'AAA';
The bonds are scheduled for a competitive sale on March 21, 2011. Proceeds will be used to refund a portion of the city's outstanding GO debt for interest savings.
In addition, Fitch upgrades the following ratings:
--$64.8 million GO bonds (pre-refunding) to 'AAA' from 'AA+'
--$41.4 million combination tax and revenue certificates of obligation to 'AAA' from 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The upgrade to 'AAA' results from a combination of a strong financial profile, limited general government capital needs, and economic and tax base resiliency through the recent economic downturn.
--The city has significant financial flexibility as evidenced by strong fund balances, moderate tax rates, and annual transfers out of the general fund to support capital projects.
--The city's debt profile is generally positive, with limited additional general government capital needs over the near term and a rapid principal amortization rate; however, the overall debt level is above average.
--Commercial development activity remains active, aided by ongoing transit-oriented development along the city's new rail stations; residential development is off sharply, the result of both the economy and the mature status of that sector.
--While taxable values have declined for two consecutive years and another drop is expected for fiscal 2012, the annual declines to date have been modest at less than 5%.
--Long term economic prospects remain favorable, given the city's location in the Dallas-Fort Worth metroplex.
KEY RATING DRIVERS:
--Future commercial development, particularly in recently developed transit hubs, would offset slower growth in the maturing residential sector and help ensure continued economic and tax base expansion.
--Maintenance of healthy operating reserves going forward despite expected additional expenditure pressures is necessary to maintain the 'AAA' rating.
SECURITY: The bonds are secured by an ad valorem tax limited in amount to $2.50 per $100 of taxable value by the state constitution and the city charter.
CREDIT SUMMARY:
Lewisville is located northwest of Dallas along Interstate Highway (IH) 35 East, lying in parts of Dallas and Denton counties in the Dallas-Fort Worth metroplex. The estimated city population for 2011 is approximately 96,500. The city is home to various manufacturing, distribution, and service concerns. Local unemployment rates historically have been lower than regional, state and national averages. The city's most recent monthly unemployment rate of 6.6% (December 2010) was unchanged from the same period last year and was below the state (8.0%) and U.S. (9.1%) averages.
The city's tax base, which recorded healthy annual gains during Lewisville's rapid growth period over the past several decades, has posted modest declines over the past two fiscal years of 2.5% and 4.5%, respectively; the fiscal 2011 taxable assessed value (TAV) is $6.08 billion. Management anticipates another decline of roughly 2% for fiscal 2012 before TAV levels stabilize. Fitch believes this projection is reasonable, given the maturity of the housing stock in the city, the relative strength of the regional economy, and expected additional commercial development resulting from planned infrastructure improvements.
Construction is nearing completion on a Denton County light rail system that will feature three Lewisville stations and tie into the Dallas Area Rapid Transit (DART) system to the south. The system is expected to begin operations in June 2011. While the recession has dampened the level of commercial development around these new stations, the pattern of future development is expected to be consistent with that associated with a number of other rail stations in the region, where retail, office and multifamily projects have been constructed. Longer term, the planned widening of IH 35 through Lewisville over the next 6-8 years also should spur additional commercial development activity. This expected future development likely would offset the winding down of single-family residential construction as the city approaches buildout.
The city's financial profile continues to be a positive credit consideration, a major factor behind the rating upgrade to 'AAA' from 'AA+'. Despite a flattening of general fund revenues since fiscal 2006 the city managed to add to reserves each year from fiscal 2006 to fiscal 2009; the unreserved general fund balance at fiscal 2009 year-end totaled $31.7 million or roughly 52% of spending. The unaudited fiscal 2010 results include a decline of roughly $5.2 million in reserves due to one-time outlays, but fund balance will remain sizable. Likewise, liquidity remains healthy, with fiscal 2009 general fund cash and investments totaling $33.8 million or more than 7 months of operating expenditures.
Sales tax revenues comprise nearly one-third of total general fund revenues and are the second largest operating revenue source. Receipts dipped more than 6% in fiscal 2009 to $17.7 million but rebounded in fiscal 2010 to $18.6 million, a 5% increase (preliminary). Management projects flat sales tax revenues for fiscal 2011, and Fitch notes the solid performance of this revenue source given the challenging economic environment. Projected fiscal 2011 general fund results point to a modest general fund balance increase, despite the TAV decline, no increase in the property tax rate, no layoffs or furloughs, a modest compensation increase for staff, and increasing pension and health insurance costs.
Lewisville's direct debt position remains moderate, although the overall debt burden is well above average due to Lewisville ISD's (unlimited tax bonds rated 'AA+' by Fitch) ongoing borrowings. Debt service as a percentage of operating expenditures is manageable at less than 12%, and principal amortization is well above average at 75% in 10 years. The city's debt position also benefits from annual general fund transfers to capital projects; Lewisville maintains a policy of transferring a sizable amount of surplus revenues, primarily for street and drainage improvements. The city has $23.5 million remaining from previous authorizations, but no additional borrowings are planned presently. The slowdown in growth has lessened the demand for additional infrastructure, and management prefers to wait for further evidence of a sustained economic/tax base rebound before proceeding with additional borrowings.
Lewisville contributes to the Texas Municipal Retirement System (TMRS) and provides post-employment health benefits to retirees. The city's fiscal 2009 TMRS contribution was less than the annual required contribution (ARC), as the city has elected to phase in over an eight-year period increasing contribution that resulted from recent TMRS program changes. The city contributes a fixed dollar amount annually toward retiree health benefits, and its unfunded liability is relatively small at $3.6 million as of Oct. 1, 2008. The city also established an OPEB trust in fiscal 2008 with an initial funding of $2 million.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug. 2010.
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct. 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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