Release date- 02052016 - Rating Action: Moody's assigns Aa1 to Wake County, NC's $194.6M Limited Obligation Ref. Bonds, Ser. 2016A; Outlook stable.
Issue: Limited Obligation Refunding Bonds, Series 2016A; Rating: Aa1; Rating Type: Underlying LT; Sale Amount: $194,600,000; Expected Sale Date: 05/10/2016; Rating Description: Lease Rental: Appropriation
Summary Rating Rationale
Moody's Investors Service has assigned Aa1 rating to Wake County, NC's $194.6 million Limited Obligation Refunding Bonds, Series 2016A. Moody's maintains the Aaa rating on the $1.9 billion of previously issued outstanding general obligation (GO) debt and Aa1 rating on the county's $260.9 million limited obligation bonds (LOBs) lease revenue appropriation pledge debt.
The Aa1 rating assignment on the LOBs is based on the more essential financed project (detention center) and pledged collateral package (justice center), the risk of non-appropriation and the strong underlying credit factors of the county.
The Aaa rating on the GO debt reflects the county's diverse economic base that benefits from the stabilizing presence of the state capital, several colleges and universities, and the southern portion of Research Triangle Park. The rating is also based on the county's strong financial position, supported by proactive management and comprehensive fiscal planning, and a manageable debt burden.
Moody's is currently evaluating comments we received on our proposed, methodological revisions to rating state and local government lease-backed, annual appropriation, and moral obligations. Our comment period closed on December 2, 2015, and the publication of the final, revised methodology could affect the Connecticut Higher Education Supplemental Loan Authority annual appropriation obligation ratings.
The outlook remains stable and reflects the economic strength of the tax base as well as the county's sound financial position.
Factor that Could Lead to an Upgrade
Elimination of non-appropriation risk by restructuring of legal pledge
Factors that Could Lead to a Downgrade
Significant erosion of the county's tax base and/or demographic profile
Deterioration of the county's reserves and/or liquidity
Increased property tax support for enterprise funds creating strain on General Fund operations
Non-appropriation of lease revenue debt
The Series 2016A LOBs are secured by the county's pledge to annually appropriate debt service payments and by a first lien on pledged collateral comprised of the justice center and related property. Total collateral available to bondholders in the event of non-appropriation will be $200 million, creating a strong asset-to-loan ratio over 95.3%. Further, the county's Budget Officer is required to include annual installment payments in each proposed budget for the life of the bonds. The County Board may delete the appropriation only through the adoption of an express resolution. If the county fails to make installment payments, the Trustee can accelerate payments and may institute foreclosure proceedings and apply the proceeds of sale to the balance of payments due under the bonds. The Deed of Trust allows for a release of assets from the collateral pool if the appraised value of the remaining assets comprises no less than 50% of the aggregate bonds then outstanding. There is no debt service reserve requirement.
Use of Proceeds
The 2016A refunding LOBs will refund a portion of the county's outstanding Series 2009 and 2010 for an estimated net present value savings of 10% without extending final debt maturity.
Wake County is the second most populous county in North Carolina located in the central portion of the state and covers roughly 864 square miles with an estimated current population of just over 1 million.
The principal methodology used in this rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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