AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the following City of Brownsville, Texas (the city) securities:
--$13.77 million general obligation (GO) refunding bonds, series 2013A;
--$8.585 million combination tax and revenue certificates of obligation (COs), series 2013A.
The bonds are scheduled for a negotiated sale the week of Nov. 18. GO proceeds will be used to refund outstanding obligations for interest savings. CO proceeds will be used to fund street construction, sidewalks, capital improvements, equipment and vehicles.
In addition, Fitch affirms the following ratings:
--$137.5 million city limited tax bonds and COs at 'AA-';
--$15.59 million Brownsville Community Improvement Corporation (BCIC) sales tax bonds at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The GOs and COs are secured by an annual property tax levy, limited to $2.50 per $100 taxable assessed valuation (TAV). The series 2013A COs are additionally payable from surplus revenues of the city's municipal landfill. The BCIC sales tax revenue bonds are secured by a 1/4% sales tax and additionally by a cash-funded reserve fund in an amount equal to the average annual debt service of all parity obligations.
KEY RATING DRIVERS
SOUND ECONOMY; GROWTH PROSPECTS: The city continues to realize solid tax base and economic growth, benefitting from its advantageous location and extensive transportation network in the lower Rio Grande Valley. The city's low cost of living, reflected in affordable housing, also supports economic growth; income and wealth levels remain below average.
STRONG FINANCES: Positive credit factors include an experienced management team, conservative budgeting, and maintenance of solid general fund balances. Sound reserves help to mitigate the city's exposure to inherently volatile sales tax revenues.
MANAGEABLE DEBT: The city's overall debt is moderate per capita, but above average in relation to market valuation. Long-term obligations do not pressure the budget and intermediate term capital needs are moderate. The city's pension is well-funded.
SOLID COVERAGE: Debt service coverage on the BCIC sales tax bonds remains sound. Legal provisions are adequate.
RATING SENSITIVITIES
MAINTENANCE OF FINANCIAL FLEXIBILITY: The rating is sensitive to shifts in fundamental credit characteristics including the city's sound fiscal practices and strong financial flexibility which help to mitigate sales tax exposure.
CREDIT PROFILE
Brownsville is located on the north bank of the Rio Grande with a 2012 population of 180,097, representing an almost 30% increase from the 2000 census. Three international bridges adjoin the city with Matamoros, Mexico.
ADVANTAGEOUS LOCATION; MULTI-MODAL TRANSPORTATION NETWORK
Brownsville serves as the county seat of Cameron County, the only port of entry from Mexico with highway, air, rail and shipping transportation modes. Directly linked to the Gulf of Mexico through a 17-mile channel, the Port of Brownsville is home to more than 230 companies performing offshore oil rig construction, ship repair and construction, rail car rehabilitation, waste oil recovery, steel and petroleum transportation services.
The maquiladora (twin-plant manufacturing) industry, employing more than 50,000 in over 100 companies, has turned Brownsville into a regional trade and distribution center for much of the valley over the past 25 years. Additionally, Brownsville continues to attract manufacturing, healthcare, professional and technology service operations which provide diversity to its traditional trade and tourism base. Unemployment has improved over the past several years, but remains elevated at 10.3% as of August 2013, characteristic of border economies. However, IHS Global Insights projects that above-average economic growth over the next several years will reduce the rate to 7.6% by 2016.
The tax base is diverse and without taxpayer concentration, although market value per capita remains well below average. TAV remained stable throughout the recession and grew about 3.5% in fiscal years 2013 and 2014, with like growth projected in the near term based on development underway. Potential new economic development includes a variety of manufacturing operations as well as a prominent aerospace program; the city is a finalist for the well-publicized Space Exploration Tech-nologies Inc. (Spacex) program.
SOUND FINANCIAL POSITION
Sales taxes provided 27% of the city's fiscal 2012 revenues, followed by property tax revenues (25%) and charges for services (22%). Cost savings drove a fiscal 2012 operating surplus after transfers of $3.9 million (4% of spending), bringing the city's unrestricted reserves to a solid $19.5 million (22% of spending).
The city regularly exceeds its fund balance policy of maintaining unrestricted general fund reserves equal to 15% of spending, which Fitch considers prudent given above-average sales tax exposure. Officials project further improvement in the city's fiscal 2013 reserves based on favorable-to-budget performance. The city adopted a balanced fiscal 2014 budget.
HEALTHY SALES TAX COVERAGE
Maximum annual debt service (MADS) coverage on the BCIC bonds remains strong at 2.6x based on fiscal 2012 audited pledged revenues of $4.2 million. Pledged revenues have grown a solid 4% over the past 10 years, despite a recessionary dip in fiscal 2009 and 2010. The city projects modest growth in fiscal 2013 and 2014 pledged revenues.
Other credit factors include a lack of additional leveraging plans, and an average 1.4x additional bonds test (ABT). The rating further reflects the strong linkage that sales tax performance shares with the city's overall financial health and general credit characteristics.
MANAGEABLE DEBT
Brownsville's overall debt is moderate per capita ($2,442), but above average per market value (7.2%), without adjusting for state support of overlapping local school district debt. Annual debt service charges are a moderate 12% of total fiscal 2012 governmental spending and reflect a rapid repayment schedule in which about 82% of outstanding principal is repaid within 10 years.
Brownsville's pension plan is provided through the Texas Municipal Retirement System (TMRS), with a fiscal year 2012 funded position of 81.9%, based on the TMRS investment rate assumption of 7%. The city provides other post-employment benefits (OPEB) to retirees in the form of health care benefits and supplemental death benefits. The unfunded actuarial accrued liability (UAAL) for the city's OPEB is $28.3 million, representing 1/2 of 1% of total market value as of Sept. 30, 2011. Carrying costs, including debt service, pension and OPEB contributions represent a moderate 22% of governmental 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, 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=808076
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