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Hamilton County Receives a AAA Bond Rating

I am delighted to announce Hamilton County has once again received a triple A bond rating from Moodys, Fitch and Standard & Poors. Congratulations to Louis Wright and his finance team for their hard work not only in initially gaining this prestigious designation but also for maintaining the triple A rating in these recent evaluations by these prestigious agencies.

In these difficult financial times it is gratifying to know the lean, efficient stewardship of our Hamilton County finances are recognized by the financial world.

---Mayor Jim Coppinger

 

 

FITCH RATES HAMILTON COUNTY, TN $88MM GOS 'AAA';

OUTLOOK STABLE

Fitch Ratings-New York-13 October 2011: Fitch Ratings has assigned an 'AAA' rating to the

following general obligation (GO) bonds of Hamilton County, Tennessee (the county):

--$65.965 million GO bonds, series 2011A;

--$21.67 million GO refunding bonds, series 2011B.

The bonds are expected to sell on Oct. 25, 2011 via competition. The series 2011A bonds will pay

the principal of certain outstanding commercial paper bond anticipation notes (CP BANs) and pay

or reimburse the county for school and other governmental projects. The series 2011B bonds will

refund certain outstanding GO bonds.

In addition, Fitch affirms the following ratings:

--$185.6 million outstanding GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The full faith, credit, and unlimited taxing power of the county are irrevocably pledged.

KEY RATING DRIVERS

Strong Fiscal Profile: Consistently high reserves arise from adherence to conservative policies.

Revenue raising capacity and manageable cost pressures contribute to ample financial flexibility.

Encouraging Economic Prospects: The county's diverse economy benefits from the increasing

presence of health care, insurance, and higher education, supplementing the traditional

underpinnings of manufacturing and transportation. Recent increases to the employment base

coupled with the availability of gigabit speed internet service enhance the county's long-term

economic prospects.

Superior Debt Management: Manageable borrowing plans coupled with projected population and

taxbase growth should allow the county to maintain low debt levels. The practice to issue 15 year

debt with level principal amortization has resulted in rapid amortization.

CREDIT PROFILE

Hamilton County is home to Chattanooga (GO bonds rated 'AA+', Outlook Stable by Fitch), the

regional economic center of a six-county metropolitan statistical area. Health care, insurance,

higher education, retail, and transportation companies as well as a growing energy presence

stabilize the county's economy. The county's Riverwalk, available outdoor activities, and historical

sites have augmented its attractiveness as a tourist destination. Manufacturing remains above the

state and national averages but no longer dominates the economy, as was the case several decades

ago. Somewhat offsetting this sector's concentration is the increase in high end manufacturing.

Volkswagen (VW; long-term Issuer Default Rating of 'A-', Outlook Stable by Fitch) recently began

automotive production at Enterprise South Industrial Park, and several ancillary businesses have

located near the VW facility. Amazon.com, Inc. has nearly completed construction of its fulfillment

center, in time for the retail season at the end of 2011. Fitch anticipates that the recent commercial

development should improve the county's economic profile over the next few years. The region is

the first nationwide to offer internet service at gigabit speed to all residences and businesses. Fitch

believes that the ability to deploy data at significant speeds will aid the county in attracting

additional commercial and industrial enterprises.

Economic metrics have remained stable. The tax base has grown annually with the exception of a

slight decline in fiscal 2011, which has since been nearly reversed. County unemployment has

historically trended below that of the state and the nation. The July 2011 unemployment rate of

8.4% was up somewhat on a year-over-year basis, as sound employment growth was offset by an

even stronger rate of participation in the labor force. Wealth levels hover slightly above state

averages but below national averages. The per capita income growth rate has been sluggish

compared to that of the nation.

The county's sound financial management practices most notably include maintaining substantial

operating reserves well above its conservative policy of unreserved general fund balance equal to

25% of budgeted expenditures. The county is able to control its largest revenue source - property

taxes - by increasing the tax rate periodically and has demonstrated the political willingness to

approve increases. In addition, the county has implemented expenditure reductions as needed to

address revenue fluctuations. Fitch notes that reductions to date have been modest, providing the

flexibility to make further cuts if necessary.

Fiscal 2010 ended with expenditures $16.5 million below budget, allowing the county to add $3.9

million to fund balance, in contrast to the original fund balance appropriation of $6.8 million. The

unreserved fund balance equalled a high 40.6% of spending, the third consecutive year that it

exceeded 40%. Preliminary fiscal 2011 results indicate a surplus in the general fund, and the fiscal

2012 budget includes a $2.4 million addition to reserves.

The county's debt profile is exceptionally strong and underpinned by sound debt management

practices. The policy of retiring most GO debt within 15 years of issuance results in a rapid

amortization rate of 72.2% within the next 10 years. Despite the rapid amortization, debt service

claimed a low 5.7% of fiscal 2010 general, sheriff, debt service, and school general purpose

expenditures. The debt ratios of 2.1% of market value and $1,794 on a per capita basis should

remains low as the county benefits from probable tax base growth.

The fiscal 2012 - 2016 $123 million capital improvement plan (CIP) includes roughly 10% cash

funding, which Fitch views as a credit positive. The plan assumes the issuance of $72 million of

commercial paper, ultimately taken out with long-term GO debt, and the remainder of the plan will

be funded with long-term debt. The county has stated that it has the capacity to issue an additional

$50 million in debt at the tail end of the CIP's timeframe.

Other long-term liabilities should not pressure the credit profile. The county makes 100% of its

annual required contribution for pensions to the Tennessee Consolidated Retirement System, equal

to a modest 4.5% of operating expenses, inclusive of the sheriff and education funds. The county

established an other post-employment benefits (OPEB) trust in fiscal 2011 and transferred in $6.4

million, representing an over-funding of the cumulative annual required contribution (ARC) of the

past four years. The county intends to continue full funding of the ARC.

Contact:

Primary Analyst

Barbara Ruth Rosenberg

Director

+1-212-908-0731

Fitch, Inc.

One State Street Plaza

New York, NY 10004

Secondary Analyst

Ginny Glenn

Analyst

+1-212-908-9130

Committee Chairperson

Jessalynn Moro

Managing Director

+1-212-908-0608

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email:

sandro.scenga@fitchratings.com.

 

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by,

or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the

ratings.

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, Zillow.com, and the National Association

of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;

--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND

DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY

FOLLOWING THIS LINK:

HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,

RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE

ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED

RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT

ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF

INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES

AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION

OF THIS SITE.

Rating Action:

MOODY'S ASSIGNS A Aaa RATING TO HAMILTON COUNTY'S (TN) $65.97 MILLION GENERAL OBLIGATION BONDS, SERIES 2011A AND $21.67 MILLION GENERAL OBLIGATION REFUNDING BONDS, SERIES 2011B; OUTLOOK REMAINS NEGATIVE

 

AFFIRMATION OF THE Aaa RATING AFFECTS APPROXIMATELY $189 MILLION IN PREVIOUSLY ISSUED PARITY DEBT

New York, October 11, 2011 -- Moody's Rating

Issue: General Obligation Bonds, Series 2011A; Rating: Aaa; Sale Amount: $65,965,000; Expected Sale Date: 10/17/2011; Rating Description: General Obligation

Issue: General Obligation Refunding Bonds, Series 2011B; Rating: Aaa; Sale Amount: $21,670,000; Expected Sale Date: 10/17/2011; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned a Aaa rating to Hamilton County's (TN) $65.97 million General Obligation Bonds, Series 2011A and $21.67 million General Obligation Refunding Bonds, Series 2011B. Concurrently, Moody's has affirmed the Aaa rating on approximately $189 million in outstanding parity debt. The outlook remains negative. Proceeds from the Series 2011A bonds will provide $27 million in new money for various school projects as well as take out approximately $41.06 million in commercial paper. The Series 2011B bonds will refund a portion of the county's outstanding General Obligation Bonds, Series 2004 for an expected net present value savings of 12.47% of refunded principal with no extension of maturity.

RATINGS RATIONALE

The bonds are general obligations of the county, secured by an unlimited ad valorem tax pledge. The highest quality Aaa rating reflects the county's regionally important economy that includes the City of Chattanooga (G.O. rated Aa1), traditionally strong financial operations and a manageable debt position.

Moody's negative outlook on Hamilton County's Aaa rating is due to its indirect linkages to the weakened credit profile of the US government. The negative outlook relates to Moody's August 2 decision to confirm the Aaa government bond rating of the United States and assign a negative outlook. We believe that issuer's rating could be affected by a downgrade of the US government's rating. In the coming weeks we will assess the county's degree of vulnerability to sovereign risk in terms of its reliance on capital markets, dependence on federal revenues, sensitivity to macroeconomic cycles, and available financial resources to offset risks related to the US government, in order to determine whether to maintain the negative outlook. Please see the Press Release from August 4 entitled "Moody's confirms Aaa ratings of 5 U.S. states and 303 other public finance issuers indirectly linked to U.S. Government bond rating; negative outlooks assigned" for more information this rating action.

STRENGTHS

-Large, regionally important tax base

-Strong financial management and healthy General Fund reserves

-Below average debt burden

CHALLENGES

-Modest 10.5% tax payer concentration

OUTLOOK

Moody's negative outlook on Hamilton County's Aaa rating is due to its indirect linkages to the weakened credit profile of the US government. The negative outlook relates to Moody's August 2 decision to confirm the Aaa government bond rating of the United States and assign a negative outlook. We believe that issuer's rating could be affected by a downgrade of the US government's rating. In the coming weeks we will assess the county's degree of vulnerability to sovereign risk in terms of its reliance on capital markets, dependence on federal revenues, sensitivity to macroeconomic cycles, and available financial resources to offset risks related to the US government, in order to determine whether to maintain the negative outlook. Please see the Press Release from August 4 entitled "Moody's confirms Aaa ratings of 5 U.S. states and 303 other public finance issuers indirectly linked to U.S. Government bond rating; negative outlooks assigned" for more information this rating action.

WHAT COULD MAKE THE RATING GO DOWN:

-Sizeable use of General Fund reserves

-Significant increase in debt burden

-Downward change in the U.S. Sovereign Rating

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Christopher Coviello
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Weber
Associate Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

 
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