AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following Mansfield, Texas (the city) general obligation bonds (GOs) and certificates of obligation (COs):
--$6.74 million GO refunding bonds, series 2014;
--$17.755 million combination tax and revenue COs, series 2014.
The bonds and COs are scheduled for a negotiated sale the week of Dec. 2. GO proceeds will be used to refund a portion of the city's outstanding tax-supported debt and CO proceeds will finance street improvements, public safety equipment and vehicles, land acquisitions, and facility projects.
Additionally, Fitch affirms the following:
--$92.7 million (pre-refunding) outstanding GO bonds and COs at 'AA';
--$11.755 million Mansfield Economic Development Corporation (EDC) outstanding sales tax bonds at 'AA-';
--$11.43 million Mansfield Park Facilities Development Corporation (PFDC) outstanding sales tax bonds at 'AA-'.
The Rating Outlook on the GO bonds and COs is revised to Positive from Stable.
The Rating Outlook on the sales tax bonds is Stable.
SECURITY
The GO bonds and COs are secured by a limited ad valorem tax levied against all taxable property in the city; the COs are secured further by a pledge of net revenues of the city's water and wastewater system, not to exceed $1,000. The outstanding EDC and PFDC sales tax bonds are special obligations of each corporation and are payable from and secured by a first lien on and pledge of a separate 1/2 of 1% sales and use tax levied within the city for the benefit of the corporations. Both the EDC and PFDC were formed by the city to promote and provide for economic development.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY: The Outlook revision reflects management's ability to maintain a high level of financial flexibility evidenced by consistent financial performance and sound reserves, supported by conservative management practices.
RESURGENCE OF ECONOMIC ACTIVITY: Additionally, the positive rating action reflects a marked pick-up of development activity as evidenced by an increase in permit values. Fitch expects the city's well-developed infrastructure and easy access to the Dallas-Fort Worth (DFW) metroplex to promote moderate ongoing growth.
HEALTHY LOCAL ECONOMY: The city's tax and employment base are diverse and expanding at an above-average pace. Income and wealth metrics trend well above average.
MANAGEABLE DEBT: High overall debt reflects overlapping school district debt. The city's capital plan appears affordable and its long-term obligation burden is high but manageable. Retiree obligations are soundly funded.
SOUND DEBT SERVICE COVERAGE: The sales tax revenue bond ratings reflect ample coverage of maximum annual debt service (MADS) from pledged sales tax collections and adequate legal protections.
RATING SENSITIVITIES
SUSTAINED GROWTH; MANAGEABLE DEBT: An ongoing trend of favorable finances, positive economic activity and a stable-to-moderating debt profile will likely result in positive rating action.
CREDIT PROFILE
Mansfield is located within the ninth largest metropolitan area in the nation, home to more than a million residents within a 15-mile radius. The city's population of nearly 60,000 has more than doubled since the 2000 census. A significant amount of developable land remains within Mansfield's 38.6 square mile land mass.
HIGH-GROWTH FORT WORTH COMMUNITY
Mansfield is bounded by Arlington, Grand Prairie, and Fort Worth, whose GO bonds are all rated 'AA+' by Fitch with a Stable Outlook. Located in the southeastern portion of Tarrant County, the city is directly connected to nearby Dallas and Fort Worth, the DFW International Airport and surrounding communities by a robust and expanding transportation network. The city's five industrial parks are home to a reported 115 industries employing over 5,400 workers, with significant expansion plans underway by Klein Tools (manufacturer of high-quality hand tools) and Mouser Electronics (a Berkshire-Hathaway company and distributor of electronic parts).
A notable medical and health services presence is evidenced by Methodist Hospital's $180 million commitment to facilities within the city, including $46 million of completed expansions, and plans for future expansion over 22 acres acquired for additional facilities. New business openings include Elite Care Emergency Center, Emerus Emergency Care and Texas State Optical; Phase II of Cook Children's Emergency Clinic is scheduled to open in 2014. In addition, Hospital Corporation of America and Texas Health Resources are slated for future hospital development totaling $227 million.
Fiscal 2013 building permit values doubled year over year, led by strong new commercial projects, and include retail, restaurants, grocers, industrial and medical district expansions. A pick-up in residential construction contributed to the growth, although new housing starts remain below the prerecession peak. Given its infrastructure and proximity to the metroplex, the city remains positioned for significant growth. To date, officials have remained well ahead of the growth curve; Fitch will continue to monitor the impact of growth pressures on the city's infrastructure.
DIVERSE AND EXPANDING TAX BASE
Fiscal 2014 market value of $5.2 billion (a moderate $87,000 per capita) is 60% residential, with a growing commercial and industrial base. The top 10 taxpayers are varied and make up a low 8% of fiscal 2014 taxable assessed valuation (TAV).
TAV expanded by a compound annual growth rate (CAGR) of 5.5% between fiscal 2006 and 2014. Although residential growth slowed during the recession, commercial development largely offset a stalled housing market, with a solid resumption of TAV growth in fiscal 2012. The city's long-term plan assumes annual TAV increases of 3% to 4% in the near term, consistent with the strengthening trend of new housing starts and development activity underway and announced.
CONSISTENT FINANCIAL PERFORMANCE
The city generally outperforms the budget and maintains sound reserve levels in compliance with its policy target (i.e. unrestricted general fund reserves equal to 25% of the operating budget). A $1.5 million (4% of expenditures) operating surplus net of transfers increased the fiscal 2012 general fund unrestricted balance to $10.5 million, a strong 28.4% of expenditures and transfers out.
Officials estimate a modest addition to fiscal 2013 reserves and a balanced fiscal 2014 budget. The long-term plan anticipates moderate growth, consistent with regional trends, a constant tax rate, and maintenance of strong reserve levels - which Fitch considers reasonable based on the city's history of sound fiscal management.
MANAGEABLE DEBT PROFILE; WELL-FUNDED RETIREE LIABILITIES
Fitch expects the city's overall debt, 9.2% of fiscal 2014 market value, to remain elevated as a result of substantial overlapping school district debt. The city's carrying costs (debt service, pension and other post-employment or OPEB contributions) are high at 26% of governmental spending.
The city's 10-year plan includes $80 million of infrastructure needs, predominantly street work, for which the city will issue general obligation debt. Officials anticipate approaching the voters for authorization in May or November 2014. Fitch would not expect a material increase in debt metrics from the additional debt based on the city's rapid amortization rate (72% in 10 years), expanding market value and growing budget resources. However, a decline in the economy could pressure the city's debt burden.
The city participates in the Texas Municipal Retirement System, with a solid fiscal 2012 funded position of 85.3% based on an investment rate of 7%. The city provides OPEB to retirees for health insurance and fully funds its annual required contribution each year; the city also established an OPEB trust in 2008. Its unfunded actuarial accrued liability is a minimal $5.4 million.
SOUND SALES-TAX REVENUE BOND COVERAGES
The bonds of EDC and PFDC are secured by a gross pledge of separate 1/2-cent sales tax revenues. The PFDC is a 4B nonprofit corporation created in 1992 following the passage of a 1/2 of 1% sales tax. The EDC is a 4A corporation that was formed in 1997 with the passage of a separate 1/2 of 1% sales tax. The PFDC has focused on various parks and recreation projects since its creation, while the EDC has helped attract business to the city through location assistance and infrastructure improvements. In addition to sales tax revenues, both corporations receive gas royalty monies that are applied to their respective mission objectives.
MADS coverage is sound at 2.5x and 3.0x for PFDC and EDC, respectively, based on fiscal 2012 sales tax revenues. Solid growth in fiscal 2012 (7.7%) and 2013 (4.2%) revenues reflect recovery of the local economy following several years of a recessionary lull.
The city has no near-term borrowing plans for the EDC, which should help maintain debt service coverage at healthy levels. Management reports the potential for a moderate PFDC debt issuance within several years, which debt will be layered into outstanding debt so that the current MADS level will not change.
Despite currently strong coverage levels, Fitch's rating takes into account legal provisions for both securities that are just adequate, with a two-pronged additional bonds test requiring gross revenues received by the corporations during any 12 of the preceding 15 months to be 1.35x MADS and 1.5x average annual debt service. The reserve requirement for each of these bonds is cash or surety funded to the IRS standard. Reserves historically have been funded with surety bonds.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809549
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