Fitch Ratings has assigned an 'AA+' rating to the following certificates of participation (COPs) of Chesterfield County, Virginia (the county):
--Approximately $23.6 million COPs refunding, series 2012.
The bonds will be sold via competitive sale on or about June 4. Proceeds will refinance certain series of outstanding COPs.
In addition, Fitch affirms the following ratings:
Chesterfield County, Virginia
--GO bonds at 'AAA';
--Certificates of participation at 'AA+';
Virginia Public School Authority (VPSA)
--Special obligation school financing bonds, series 2004 at 'AAA';
Chesterfield County Economic Development Authority, VA (EDA)
--Public facilities lease revenue bonds, series 1999 at 'AA+';
--Public facility revenue refunding bonds, series 2010A at 'AA';
--Taxable recovery zone economic development revenue bonds, series 2010B at 'AA'.
The Rating Outlook is Stable.
The COPs are secured by lease rental payments subject to annual appropriation by the county. In the event of non-appropriation the lease would terminate and the surrender of the leased assets, which consist of county administration buildings, courthouses, a public safety training center, and a jail, among other facilities. The certificates of each series are separate obligations and are not cross-collateralized, except for the series 2012 COPs.
The GO bonds are general obligations secured by the full faith, credit and taxing power of the county.
The special obligation school financing bonds are special obligations of the VPSA, payable solely from debt service payments made by the county on local school bonds issued to VPSA. Security rests on the county's full faith and credit GO pledge.
The EDA lease revenue bonds are secured by lease rental payments subject to annual appropriation by the county. An event of non-appropriation would result in the termination of the lease, and the surrender of the leased asset, a juvenile and domestic court building.
The EDA revenue bonds are payable solely from payments to be made by the county under a support agreement, subject to annual appropriation. Bondholders are not secured by a security interest in the bond-financed projects.
KEY RATING DRIVERS
'AA+' RATING ON COPS: The ratings on the county's COPs and the EDA lease revenue bonds are notched down from the 'AAA' GO rating of the county, reflecting risk inherent in the annual appropriation of lease rental payments and the essential nature of the government assets securing bondholders.
DIVERSE ECONOMIC BASE: Ample land supply and favorable location within the Richmond metropolitan area show excellent prospects for continued development and expansion. Solid economic indicators include stable unemployment rates below the national average and above-average wealth levels.
STRONG FINANCIAL PERFORMANCE: Sustained excellence in financial management and planning has resulted in consistently positive operating results and healthy reserve levels.
LOW DEBT BURDEN: Overall debt levels are low, attributable in part to a solid history of pay-as-you-go capital financing.
'AA' RATING ON EDA REVENUE BONDS: A two-notch distinction from the county's GO rating reflects risk to annual appropriation as well as the absence of a security interest in an essential government asset.
ABOVE-AVERAGE ECONOMIC PROFILE
Chesterfield County is located southwest of Richmond, Virginia, and serves as an integral part of the Commonwealth's economically vital capital region. The county's highly skilled labor force not only fills the area's government and professional positions but also meet the demands of its own diverse and growing employment base. Major employers within the county include high-tech synthetic fibers manufacturing, retail food distribution, and health care.
Economic development within the county continues despite the recent recession. Early this calendar year, Amazon began construction on an $85 million, 1 million sq. ft. fulfillment center in Chesterfield's Meadowville area. Over 1,000 jobs will be created to staff this facility, which will be operational by the end of calendar 2012. Honeywell's planned expansion of operations at its Chesterfield plant will include a $27.5 million investment and the hiring of 50 additional employees. Kroger has also recently expanded its commitment in the county: its flagship store currently under construction will be the largest in the Mid-Atlantic.
Economic indicators remain positive. The county's unemployment rate of 5.9% for February 2012 is below that of the state's (6.1%) and nation's (8.7%). The county's unemployment rate is improved from 6.6% a year prior due to very strong job gains. Wealth levels are in line with state averages and above national averages.
AMPLE FINANCIAL FLEXIBILITY
The county's financial position is strong, reflecting conservative budgeting and sound reserve policies (unassigned fund balance target is 8% of spending). Fiscal 2011 ended with a $17.6 million operating surplus after transfers (equivalent to 2.5% of spending), marking the county's tenth addition to fund balance in the past ten audited fiscal years. The unrestricted fund balance (the sum of assigned, unassigned and undesignated under GASB 54) increased to $236.6 million, equal to a robust 34.1% of spending.
The fiscal 2012 general fund budget is performing well based on five months of actual results. Personal property tax revenues are exceeding budgeted expectations, and debt service and vacancy savings are helping to bring expenditures under budget. Due to these positive variances, the county projects a modest increase (approximately 2% of spending) to year-end fund balance.
The biennial fiscal 2013 and 2014 budget shows continued sound financial management. Consecutive surpluses are projected based on relatively modest revenue growth of 1% per annum. The county's millage rate is assumed flat, and at $0.95 per $100 AV is competitive for the region. County management has conservatively budgeted employee benefit and education expenditures to provide cushion in the event of increased pension costs or revenue shortfalls from external sources, respectively. Fitch also notes that expenditure controls enacted over the past several years have been relatively modest, further enhancing budgetary flexibility and the county's ability to react to unforeseen fiscal challenges.
WELL-MANAGED LONG-TERM OBLIGATIONS
Overall debt levels are low at $1,757 per capita and 1.5% of market value. Debt service requirements for fiscal 2011 total $69.8 million or a manageable 10% of spending (the county has established a 10% policy target). Fitch notes that principal amortization is rapid.
The county has a very small amount of outstanding variable rate debt ($28.9 million or 5.6% of total direct debt) for which debt service is budgeted at 2.5% and whose letters of credit were recently renewed.
The fiscal 2013-2017 capital improvement plan (CIP) includes $320 million (0.8% of market value) of general government and school projects, of which $168.7 million will be debt financed. Fitch does not believe the county's additional issuance plans will materially impact credit quality. The county projects debt service will peak in fiscal 2015 but will remain at policy target levels due to a corresponding increase in total spending.
The county reduced its pay-go target to 4.5% of spending from 5% in response to a weakened economy. To compensate, the county established a pay-go reserve, which now equals $3.9 million. Fitch considers pay-go contributions an area of flexibility as fiscal 2011 contributions totaled $13.2 million (1.9% of spending). Pension funding levels are considered satisfactory by Fitch (at 75% using a 7% investment rate of return) and annual pension and OPEB contributions together total a modest 4.1% of spending.
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 the Tax Supported Rating Criteria, this action was informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and Zillow.com.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria