News Column

Fitch Affirms Brazoria County, TX's ULT Road Bonds, LTGO Rfdg Bonds, and COs

May 19, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms at 'AA+'the following ratings for Brazoria County, Texas (the county):

--$41.5 million unlimited tax (ULT) road bonds;

--$3.6 million general obligation (GO) refunding bonds, series 2012;

--$35.2 million certificates of obligation (COs).

Fitch makes no rating distinction between the ULT bonds and the GOs and COs, both which are limited tax obligations, given the county's ample taxing margin.

The Rating Outlook is Stable.

SECURITY

The ULT bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the county.

The GOs and COs are each secured by a limited ad valorem tax pledge on all taxable property within the county, not to exceed $0.80 per $100 of assessed value.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The county's strong financial profile reflects solid reserves, positive operating margins, and prudent financial policies.

GROWING ECONOMY: Continued development in chemical manufacturing and petroleum processing is driving labor force growth and demand for housing, promoting residential development and boosting sales tax receipts. Unemployment is low and income metrics are generally above state and national averages.

CONCENTRATED TAX BASE: The tax base is concentrated in chemical manufacturing and petroleum processing. However volatility in these industries has been minimal, particularly with ongoing investment by the largest taxpayers in the area economy.

AVERAGE DEBT PROFILE: The county's overall debt ratios are high, driven by debt of underlying cities, school districts, and special districts. Carrying costs and amortization are average and future capital needs appear manageable, focusing primarily on road construction and maintenance as a result of the economic development.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices that help mitigate concentration in the tax base. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Brazoria County is located immediately south of Houston and bordered by the Gulf of Mexico and Fort Bend, Galveston,

and Matagorda Counties. The county's 2013 population of 330,242 is up 34.3% from the 2000 census and has grown steadily over the past decade. The county seat is Angleton and the largest city is Pearland (GO bonds rated 'AA', Stable Outlook by Fitch) with a population of approximately 106,500.

GROWING ECONOMY CONCENTRATED IN PETROLEUM AND CHEMICAL MANUFACTURING

The county's economy centers on chemical manufacturing and petroleum processing with the presence of several other industries including fishing, tourism, government, and agriculture. The Port of Freeport, the 21st largest port in the U.S. in terms of foreign tonnage, provides critical transportation access for the region's dominant chemical manufacturing and petroleum processing businesses.

Dow Chemical Co. is the largest employer and taxpayer in the county with 4,200 employees and 11.8% of taxable assessed valuation (TAV) in 2013. Dow Chemical's investment in the community continues to expand, along with other chemical manufacturers including Germany-based BASF and Chevron Phillips Chemical Company. While the majority of industrial expansions are at chemical manufacturing plants, downstream oil and gas sectors also play a role in the county economy with Houston-based Freeport LNG proposing the expansion of an existing terminal that would liquefy and export natural gas.

Overall, the largest taxpayers make up a high 24.3% of TAV in the county and reflect the dominant economic role of the prevailing industries. Fitch notes that the historical stability of these industries and the ongoing diversification of the regional economy somewhat offsets concerns regarding the current concentration.

Economic growth drives the county's need for both skilled and unskilled workers, thus lowering the March 2014 unemployment rate to 5.5% from 6.5% just 12 months prior. Income metrics are above average compared to state and national averages.

RISING TAXABLE ASSESSED VALUE

The county's TAV increased 3.3% and 6.7% in fiscals 2013 and 2014, respectively, and growth is expected to continue, augmented by previously abated properties being added to the tax rolls and a recent increase in the tax rate from $4.731 to $4.859 per $1,000 TAV. Management's expectations for similar growth going forward appear reasonable given ongoing activity.

POSITIVE OPERATING RESULTS LEAD TO STRONG FUND BALANCE

The county is reliant primarily on property and sales taxes, making up approximately 65% and 15% of general fund revenues, respectively, and have been the leading drivers of revenue growth over the past decade. Robust economic activity and resultant tax revenue growth have also supported increases in reserve levels over the last five years. Fiscal 2013 ended with a strong 54.9% of spending in unrestricted fund balance, or $52.5 million.

The fiscal 2014 budget includes balanced operations. Favorably, year-to-date results point to another year of positive operations, continuing a history of conservative budgeting and stronger-than-expected sales tax receipts. The positive expectation means that the county should have no problem maintaining compliance with its newly adopted fund balance policy of 25% of spending versus the previous 15%.

MIXED DEBT PROFILE

The county's overall debt levels are above average at $5,386 per capita and 6.0% of market value and are comprised primarily of overlapping debt. Potential capital needs include the construction of a toll road connecting Brazoria County to Harris County, although financial feasibility of the road is still being assessed. The county may issue some tax-supported debt in the future to fund the project yet specific timeframe and amount have not been defined. No other capital needs are currently planned. Amortization of debt outstanding is average with 54.5% of principal paid off in ten years.

MANAGEABLE PENSION & OPEB LIABILITIES

The county fully funds its annual required contribution (ARC) to the statewide pension program and has an affordable other postemployment benefit liability (OPEB). Fitch considers the county's pension funded ratio adequate at 74.2% funded (using a 7% investment return) as of the Sept. 30, 2013 actuarial valuation. Carrying costs, including debt service, pension ARC, and OPEB actual payment, were average at 15.9% of fiscal 2013 total government expenditures.

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

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, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830696

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Leslie Ann Cook

Analyst

+1-212-908-0507

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Rebecca Meyer

Director

+1-512-215-3733

or

Committee Chairperson

Doug Scott

Managing Director

+1-512-215-3725

or

Media Relations:

Elizabeth Fogerty, New York, +1 212-908-0526

Email: elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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