Fitch Rates Greenville, SC's PFC $18.9MM Rev Bonds 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'AA+' rating to the following bonds of the Greenville, South Carolina (the city) Public Facilities Corporation (PFC):

--$18,940,000 taxable installment purchase revenue bonds, series 2015.

The installment purchase bonds are expected to sell on or about Dec. 3 via negotiation. Bond proceeds will be used to fund the costs of acquiring, constructing, renovating and equipping a municipal parking facility and defeasing the series 2013 installment purchase revenue bonds.

In addition, Fitch affirms the city's following rating:

--8.3 million general obligation (GO) bonds series 2012 at 'AAA'.

The Rating Outlook is Stable.

Pursuant to Fitch policy, new rating assignments during the exposure draft period for U.S. State and Local Government Criteria are analyzed under both the existing and proposed criteria approaches. If the results of the two approaches differ, Fitch assigns a rating based on the proposed criteria, because it more accurately reflects Fitch's current view. The rating assigned in this Rating Action Commentary is based on the proposed criteria approach. Under this approach, with some exceptions, appropriation-backed bonds will generally be rated one notch below the obligor's unlimited tax general obligation (ULTGO) rating, reflecting the slightly higher degree of optionality associated with lease/appropriation payments compared to ULTGO bond payments. None of the exceptions apply in this case.

SECURITY

The installment purchase bonds are limited obligations of the PFC as conduit issuer and are payable from installment payments by the city, subject to annual appropriation. The installment payments are equal to debt service and payable from any legally available source of the city.

The GO bonds constitute general obligations of the city, to which its full faith and credit and unlimited taxing authority are pledged.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Financial management is sound, budgeting practices are conservative, and reserve levels are consistently healthy. Financial flexibility is ample.

REGIONAL ECONOMIC ANCHOR: The city sits at the core of an employment and economic center serving a nine-county area along I-85 between Atlanta, GA and Charlotte, NC. In addition to the strong manufacturing base, the local economy has diversified to include a broad mix of business services, healthcare, government, tourism and educational activities.

MANAGEABLE DEBT POSITION: Debt levels are average, existing debt is rapidly repaid, and future capital needs and issuance plans are reasonable and should not stress financial flexibility.

APPROPRIATION RISK: The annual appropriation risk is reflected in the one notch difference between the GO and the installment purchase bond ratings.

RATING SENSITIVITIES

HEALTHY RESERVES: Fitch expects the city's strong financial position to remain stable over the next several years. The rating may be pressured by any material weakening of the city's financial reserves.

CREDIT PROFILE

The city serves as the regional retail and commercial hub, driven by its strategic location in upstate South Carolina between Charlotte, NC and Atlanta, GA. Greenville anchors the four-county Greenville-Anderson-Mauldin metropolitan statistical area (Greenville MSA).

MANUFACTURING STILL AN IMPORTANT ECONOMIC DRIVER

Manufacturing remains an important component of the local economy, accounting for approximately 15% of Greenville MSA employment. Manufactured products are diverse, including automotive products, electrical components, gas turbines, industrial robots, and pharmaceuticals. Major manufacturers include auto manufacturer BMW, located in nearby Spartanburg, Michelin North America, and General Electric, which operates the world's largest gas turbine manufacturing plant just outside the city.

As of September 2015, the city's unemployment rate was a low 4.8%, down from 5.4% just 12 months prior, and compares favorably to that of the nation (4.9%) and the state (5.7%) for the same period. The considerable value of the manufacturing properties located within the city translates to a healthy market value per capita approximating $110,000. As of 2014, Greenville County's median household income metrics were a favorable 110% of the state, but relatively weaker at 92% of the U.S. median.

CONSISTENT TAXABLE VALUE GROWTH

Assessed values increased despite the recession averaging growth of 3.5% annually from 2009 to 2015. Most recently, taxable assessed value (TAV) was up a strong 7.3% in fiscal 2015 and management projects fiscal 2016 to be up another 9.8% based on the recently completed reassessment. The tax base is projected to maintain a modest growth trend over the near term, which Fitch believes is reasonable given the current economic activity and growth in construction permit values. The stable and positive tax base performance is a favorable credit characteristic as property taxes are the most significant source of general fund revenue at 46.5%.

STRONG RESERVES, GOOD BUDGETARY FLEXIBILITY

The city's financial resources are healthy, following surplus results for the past six consecutive years. Reserve levels have historically been in excess of the city's prudent fund balance policy to maintain an unassigned general fund balance equal to no less than 20% of the following fiscal year budget. Unaudited fiscal 2015 results show a general fund net operating surplus after transfers of $3.1 million or 4.3% of spending. The unrestricted general fund balance (unaudited) was $26.9 million or a strong 36.7% of spending, up primarily due to an increase in the millage rate (the first in 15 years) and the 7% growth in TAV.

The fiscal 2016 adopted budget increase of $2.7 million is a 2.2% increase over the fiscal 2015 budget with a decrease to the total millage rate of 4.1 mills or 4.6% to make the revenues neutral to increased value of the tax base from the reassessment. The city adopted a merit increase of 3% for employees. Revenue growth includes license and permit revenues which will now be equal to property tax as the two largest sources of revenue (both at 47% or a combined 94% of budgeted revenues). Collections indicate that business licenses, which are among the most economically sensitive of revenues, came in well ahead of the fiscal 2015 budget and are improving along with economic conditions.

The budget's $2 million draw on fund balance due to a capital outlay of $8.7 million for the construction of a new fire station on the city's east side and maintenance and upgrades of the existing aging fire stations, among other projects will likely be smaller than budgeted given the historically conservative budgeting.

MODERATE LIABILITY BURDEN

GO bonds represent just 13% of Greenville's outstanding principal. Under South Carolina's statutory debt limit the city could issue another $24.5 million in GO bonds (they are at 25% of the limit as of fiscal year-end 2015). The city's remaining debt is made up of hospitality dedicated tax bonds and installment purchase appropriation-backed debt. Overall debt levels of the city are average at $3,769 per capita and 3.2% of market value. Amortization of outstanding principal is rapid with 79.3% retired in 10 years. The five-year capital improvement plan (CIP) through fiscal 2020, of which $6.1 million will be debt financed, totals a manageable $56.3 million (a low 0.7% of market value).

General city employees and police officers participate in state-administered plans and firefighters in a city-administered plan. The city fully contributes its pension obligation to both state plans, which are weakly funded. In fiscal 2016, contributions to the South Carolina Retirement System (SCRS) will increase to 11.1% from 10.9% of payroll while contributions to the Police Officers Retirement System (PORS) will increase to 13.7% from 13.4%. The combined impact of these two rate adjustments on the employer contribution totals about $74,000. Further increases in employer contributions are likely in the future, but these should remain affordable given the city's strong revenue flexibility.

Separately, annual contributions to the city's single employer pension plan for firefighters consistently exceed the annual required contribution (ARC), and the liability burden is small. The city continues to fully fund the ARC for other post-employment benefits (OPEB), and carrying costs inclusive of all debt, pension ARC, and OPEB costs make up a low 14.7% of fiscal 2014 governmental fund spending.

APPROPRIATION-BACKED DEBT COVERAGE SUFFICIENT

The installment purchase bonds will finance the construction of a new parking garage and refinance debt of the construction of a second garage. These two garages, along with a third garage, cash financed by the city and under construction, represent an additional 1,420 parking spaces on top of 6,171 spaces the city's parking system currently provides. The installment purchase bonds are payable from city payments to the PFC that are sufficient to pay debt service, subject to annual appropriation. As the installment payments are made the city takes ownership in the project facility from the PFC proportional to the amount of total principal and interest payable on the bonds. Ultimately, the installment purchase debt service is payable from any legally available funds of Greenville.

The city's parking system revenues are the primary revenues intended to cover the new debt service payments. The parking system's historical and projected revenues cover parking system bond debt service over 2x. Unaudited fiscal 2015 financials show parking system reserves of $4.3 million equal to nearly 60% of fiscal 2015 parking revenues; well above the city's 16% of revenues target for these reserves. The city also notes its ability to cover any revenue shortfalls from the parking system from hospitality and accommodation tax revenues, which while economically sensitive, increased in fiscal 2015 9% and 17%, respectively. The taxes are currently bringing in revenues in excess of those pledged which are available for transfers to the general fund, capital projects fund and additional programming.

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

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 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, IHS Global Insight, and Zillow Group.

Applicable Criteria

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

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993941

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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
Parker Montgomery, +1-212-908-0356
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larry Levitz, +1-212-908-0500
Director
or
Committee Chairperson
Laura Porter, +1-212-908-0575
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Parker Montgomery, +1-212-908-0356
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larry Levitz, +1-212-908-0500
Director
or
Committee Chairperson
Laura Porter, +1-212-908-0575
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com