News Column

Fitch Ratings Affirms Greenville, SC's GOs at 'AAA'; Outlook Stable

July 11, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms Greenville, South Carolina's general obligation (GO) bonds as follows:

--9.1 million GO bonds series 2012 at 'AAA'.

Fitch Ratings has withdrawn its ratings for the following Greenville (SC) bond due to prerefunding activity:

--General Obligation bonds series 2006 (all maturities).

The Rating Outlook is Stable.

SECURITY

The 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.

RATING SENSITIVITIES

RATING STABILITY EXPECTED: The rating is sensitive to fundamental shifts in various credit characteristics, including the city's strong financial management practices. The Stable Rating Outlook reflects Fitch's expectation that these shifts are unlikely.

CREDIT PROFILE

The city serves as the regional retail and commercial hub, driven by its strategic location between Charlotte, NC and Atlanta, GA and its easy access to two ports within the state.

MANUFACTURING STILL AN IMPORTANT ECONOMIC DRIVER

Manufacturing remains an important component of the local economy, accounting for approximately 15% of Greenville-Anderson-Mauldin metropolitan statistical area (Greenville MSA) employment. Manufactured products are diverse, including industrial robots, electronic components, automotive products, gas turbines and pharmaceuticals. Major manufacturers include auto manufacturer BMW, located in nearby Spartanburg, Michelin North America, and General Electric, which operates the largest gas turbine manufacturing plant in the world. The loss of a nearby Caterpillar manufacturing facility with 380 jobs is more than offset by companies relocating to the county, including Esurance and Meyer Tool Inc.

As of April 2014 the city's unemployment rate was a low 3.8%, down from 5.6% just twelve months prior, and compares favorably to that of the nation (5.9%) and the state (5.0%) for the same period. The considerable value of the manufacturing properties located within the city translates to a healthy market value per capita approximating $108,000. However, resident income metrics are not nearly as favorable, with median household income equaling 78% of the U.S. standard.

CONSISTENT TAXABLE VALUE GROWTH

Assessed values have proven resilient and did not contract materially post-recession. Taxable assessed value (TAV) remained flat in fiscal 2012 but improved in fiscal 2013 by 2.3% and was up another 2.4% in fiscal 2014. Management projects TAV to gain another 2.0% in fiscal 2015 and to maintain a modest growth trend over the near term, which Fitch believes is reasonable given the current economic activity. 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 45%.

FINANCIAL PROFILE MARKED BY HIGH RESERVES, GOOD BUDGETARY FLEXIBILITY

The city's financial resources are healthy, following surplus results for the past five 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 2014 results show a general fund net operating surplus after transfers of $748,000 or 1.1% of spending. The unrestricted general fund balance (unaudited) was $22.2 million or a strong 31.8% of spending.

The fiscal 2015 proposed budget includes a 4 mill tax increase, a 4.68% increase over the prior year's rate, and is the first increase in over fifteen years. State law imposes a limitation on the millage levied for operational purposes to growth in the CPI and population, and the city will carry over 7.73% in unused rate increase into the next fiscal year, providing significant flexibility if needed. The limitation may also be overridden in certain circumstances by vote of the city's governing body.

The fiscal 2015 budget contains $71,590,027 in estimated revenues reflecting about $5.7 million or an 8.7% increase over the previous year's budget. Approximately $1.3 million of the increase is attributable to the millage adjustment. Another $2 million comes from a 7.0% increase in licenses and permits which make up 42% of general fund revenues. Collections indicate that business licenses, which are among the most economically sensitive of revenues, are improving along with economic conditions. At 2014 fiscal year end, licenses and permits were up 6.9% over the year prior.

The budget also includes a projected $3.0 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. Fitch believes this draw will likely be smaller than budgeted given the historically conservative budgeting.

MODERATE DEBT BURDEN AND OTHER LONG-TERM LIABILITIES

Overall debt levels of the city are average at $3,548 per capita and 3.2% of market value. Amortization of outstanding principal is rapid with 93% retired in 10 years. Fitch considers the city's capital needs to be reasonable and does not believe the city's capital plans will stress overall financial flexibility. The five-year capital improvement plan (CIP) through fiscal 2019, of which $11.5 million will debt financed, totals a manageable $57.1 million (a low .9% of market value). The CIP includes projects for infrastructure, streetscapes, sewer, economic development, and parks.

General city employees and police officers participate in state-administered plans and firefighters in a city-administered plan. The city fully funds its pension obligation to both state plans. In fiscal 2015, contributions to the South Carolina Retirement System (SCRS) will increase from 10.6% to 10.9% of payroll while contributions to the Police Officers Retirement System (PORS) will increase from 12.84% to 13.41%. The combined impact of these two rate adjustments on the employer contribution totals about $160,000. SCRS reported a weak funded ratio of 64.7% as of June 30, 2013. The funding level for the SCRS would be even weaker, estimated at 61.4%, applying a 7% rate of return. Fitch believes that further increases in employer contributions are likely in the future, but these should remain affordable.

Annual contributions to the city's fire department pension plan consistently exceed the annual required contribution (ARC), and the most recent funded ratio remains satisfactory at 83%. The city continues to fully fund the ARC for other post-employment benefits (OPEB), and carrying costs inclusive of all debt, pension, and OPEB costs make up a low 14.75% of fiscal 2013 governmental fund spending.

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=839146

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

Mike Rinaldi

Senior Director

+1-212-908-0833

or

Committee Chairperson

Arlene Bohner

Senior Director

+1-212-908-0554

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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