The notes will be sold via negotiation on
Fitch has also assigned an 'A+' rating to the following
The lease revenue bonds will be sold competitively on
In addition, Fitch affirms various other outstanding ratings as listed at the end of this press release, including the county's 'AA-' implied unlimited general obligation (ULTGO) bond rating.
The Rating Outlook is Stable.
The notes are general obligations of the county, secured by unrestricted general fund revenue attributable to fiscal 2015, including requirements to set aside the first such funds received during specified time periods for note repayment.
The 2014 LAC-CAL bonds are secured by county departments' equipment lease rental payments to the corporation. The county covenants to budget and appropriate annually sufficient equipment lease rental payments from any source of legally available funds, subject to abatement.
The county's outstanding lease revenue bonds and COPs are also secured by the county's covenant to budget and appropriate, subject to abatement.
KEY RATING DRIVERS
SOLID FINANCIAL MANAGEMENT: Financial operations are well managed with strong general fund balances. The general fund returned to positive operations in fiscal 2013.
ONGOING GENERAL FUND SUPPORT FOR HEALTH SYSTEM: The county is working hard to take advantage of health care reform to strengthen its
SIGNIFICANT LONG-TERM LIABILITY EXPOSURE: While the county has a moderate overall debt burden, it also has increased pension contribution costs in fiscal 2015, a costly retiree medical program, and a large other-post employment benefits (OPEB) unfunded accrued actuarial liability (UAAL).
LOCAL ECONOMY IMPROVING: The diversity and maturity of the county's vast economy and tax base help offset its evident cyclical vulnerability. Improving economic indicators, particularly related to the county's tax base and revenue streams, counterbalance the relatively high unemployment rate.
STRONG SHORT-TERM DEBT COVERAGE: The notes' short-term rating corresponds to the county's implied ULTGO bond rating. The combination of pledged revenues and court-verified borrowable resources provide very strong debt service coverage for the notes. Full note principal and interest set-asides occur well in advance of note maturity.
LEASE RATINGS REFLECT ABATEMENT RISKS: The one-notch rating distinction between the county's implied ULTGO rating and the majority of its COPs and lease revenue bonds represents the county's covenant to budget and appropriate for lease payments, subject to abatement. There is a further one-notch distinction for non-standard leases for
SOUND EQUIPMENT LEASE PROGRAM: The equipment lease financing program has a strong 31-year history, the bonds' lease features are typical of California lease transactions, and the debt matures rapidly since it is matched to the leased equipment's useful life. All of the leased equipment is essential to county departments' service delivery and is in current use.
The rating is sensitive to shifts in fundamental credit characteristics including the county's strong financial management practices, its level of general fund support for DHS, and the size of its retiree burden. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
STRONG SHORT-TERM DEBT COVERAGE
Fitch's 'F1+' notes rating reflects the sound note repayment structure, strong coverage of all note repayment set-asides, particularly when borrowable funds are included, and the large size of the borrowable resources relative to the set-aside amounts. The repayment deposit structure sets aside 100% of principal and interest well in advance of note maturity.
The notes are secured by a first lien on unrestricted revenue received in
Fitch notes that fiscal 2015's projected cash flow shows two of the three note set-asides occurring in months with negative net ending balances. During those two months, note set-aside coverage falls below 1.0x based solely on the monthly net ending balances. However, factoring in available borrowable resources, coverage during all three set-aside months is very strong at 12.8x-19.5x.
The county's projected pool of resources available for interfund loans remains ample (between
SOUND EQUIPMENT LEASE PROGRAM
The 2014 LAC-CAL bonds are the latest installment in a 31-year program of lease revenue bonds issued to refund bond anticipation notes (BANs) that funded the purchase of essential equipment which the corporation leases to county departments. Bondholder protections include a bond-funded reserve of the lesser of
SOLID FINANCIAL MANAGEMENT
The 'F1+' notes rating also incorporates the county's long-term credit quality. The implied long-term ULTGO rating of 'AA-' reflects the county's diverse and mature economy, low direct debt burden, sound financial reserves, and prudent management efforts to achieve fiscal balance amid ongoing and sizable financial pressures. These pressures stem from a heavy social service spending burden, state funding changes, the historic fiscal imbalance in the county's DHS, a large unfunded pension liability, and a costly retiree medical program.
General fund support for DHS contributed significantly to net operating deficits after transfers during fiscal years 2009-2012. Fiscal 2013 saw a return to positive general fund operations and ended with a total general fund balance of
The county is projecting that it will end fiscal 2014 with a modest surplus, increasing the total general fund balance to between
The county's rainy day reserve fund is now
DHS FINANCIALS IMPROVING BUT GENERAL FUND SUPPORT STILL REQUIRED
DHS ended fiscal 2013 with a
Favorably, DHS pressures continue being partially alleviated by the extension of a federal section 1115 waiver through
SIGNIFICANT LONG-TERM LIABILITY EXPOSURE
The county's overall debt burden is a moderate
The county faces sizeable long-term liabilities in terms of its unfunded pension and OPEB liabilities. As of
The county's cash contributions to the pension system, which are equal to the annually required contribution (ARC), continue to grow, to a projected
The county also has a
CONTINUED HIGH UNEMPLOYMENT, BUT TAX BASE REBOUNDING STRONGLY
The county's unemployment rate (8.7% in
Due to the county's highly developed and mature nature, taxable assessed valuation (TAV) losses were relatively low at 0.5% and 1.9% decreases in fiscal years 2010 and 2011 respectively, indicating a significant Proposition 13 cushion. Since then, the property market has rebounded with 1.4%, 2.2%, and 4.7% TAV increases in fiscal years 2012-2014 respectively, and an estimated 5.1% TAV increase in fiscal 2015.
OUTSTANDING DEBT RATED BY FITCH
Fitch has affirmed the following outstanding ratings:
--Implied county ULTGO bond rating at 'AA-';
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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