Fitch Ratings has assigned an 'F1+' rating to the following Shelby County, Tennessee (the county) notes:
--$120 million capital outlay extendible municipal commercial paper (EMCP) notes, 2015 series A.
Proceeds will be used to fund various public works and school improvements.
SECURITY
The notes are direct obligations payable from a pledge of the taxing power of the county. The county covenants to impose a tax sufficient to pay when due principal of and interest on the notes; the county's taxing power is unlimited. The notes are expected to be sold via negotiation beginning in early February.
KEY RATING DRIVERS
FOCUS ON LONG-TERM CREDIT QUALITY: The 'F1+' rating reflects the long-term credit quality of the county (Fitch general obligation rating 'AA+'). Long-term credit quality is underscored by strong financial reserves and prudent fiscal management. The diverse economic base has been somewhat slow to recover from the recession, and the county's moderate debt is structured for rapid retirement.
SATISFACTORY STRUCTURAL PROVISIONS: If the county fails to provide funds at note maturity, the notes are automatically extended allowing time for the county to either pursue remarketing, access internal liquidity or issue bonds to take out the notes. The extension allows adequate time to for a remarketing, thereby enabling a mapping to the long-term rating.
STRONG MARKET ACCESS: Risk to market access is tempered by the county's strong long-term credit quality; strong market access is demonstrated in recent bond sales.
RATING SENSITIVITIES
MAINTENANCE OF RESERVES: The county has a long history of operating surpluses and growing reserves. A marked deterioration in financial condition could pressure the rating.
SCHOOL REALIGNMENT RISK: The public education system has seen dramatic changes from a merger and subsequent spin offs. Near-term changes are not expected in the county's school funding contribution, but if the county school district falters in management of resources there is the potential for budgetary strain for the county. A decline in the county's long-term rating could pressure the rating of the notes.
CREDIT PROFILE
The county, which has the city of Memphis as the county seat, is located in the extreme southwest corner of the state. With a 2014 population of 939,465, the county is the largest in the state.
ABILITY TO MANAGE UNREMARKETED NOTES
Initial note maturity may not exceed 90 days, and the maturing notes are expected to be funded with roll-over notes. If redemption does not occur from roll over notes or funding from the county (either bonds or internal liquidity), the notes are automatically extended to 270 days from the date of issue with a reset interest rate. Such extension is not an event of default. The county has the option to call the extended notes. The notes do not have a tender feature.
The county's long-term credit rating of 'AA+' implies access to the capital markets in the event of a remarketing failure. In the county's two most recent general obligation bond sales the number of bid submissions was high.
LONG-TERM FINANCING AUTHORIZED
The notes are being issued to provide interim capital financing and are expected to be redeemed in approximately two years with general obligation bonds. The bonds have been authorized and are past the period during which voters may file a petition against the bonds. The county expects to issue the notes as capital funds are needed, with approximately $55 million issued in the first year.
STRONG LONG-TERM CREDIT QUALITY
The county's 'AA+' general obligation bond rating reflects the county's strong finances and prudent fiscal management. While benefitting from a diverse economic base, the county recovery from the recession is sluggish and wealth levels are below average. Debt ratios are moderate and amortization is rapid. For more details on the county's general obligation credit quality please see 'Fitch Rates Shelby County, TN's GO Bonds 'AA+'; Outlook Stable' dated Dec. 18, 2014.
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, Zillow.com, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and the Underwriter.
Applicable Criteria and Related Research:
--'Rating U.S. Public Finance Short-Term Debt' (Jan. 7, 2015);
--'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=978765
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