Fitch Rates Modesto PFA, California's $67MM Lease Rfdg Revs 'A+'; Outlook Stable

SAN FRANCISCO--(Business Wire)--
Fitch assigns an underlying 'A+' rating to $66.7 million Modesto
Public Financing Authority (Stanislaus County, California) lease
revenue refunding bonds, series 2008. The Rating Outlook is Stable.

The bonds are expected to sell via negotiation on Aug. 28, 2008.
The bonds are secured by lease payments made by the City of Modesto to
the authority for use and occupancy of several essential city
properties.

The 'A+' rating reflects the city's sound financial position
despite pressure from a weakened local residential property market,
the downturn in the regional economy, and anticipated state funding
reductions. To offset the weakened economy, the city has begun
initiatives related to new revenue sources, service delivery changes,
and inter-agency strategies to minimize residential property
foreclosures. City management remains committed to maintaining
unrestricted general fund reserve levels at 8% of expenditures and is
adjusting its general fund expenditures accordingly. Fitch notes that
maintenance of the city's current general fund balance to at least
current levels and the restoration of structural balance are important
indicators of management's strength and, therefore, essential to
maintenance of the current rating. While local unemployment levels are
above-average, the city's local agricultural and manufacturing sectors
remain healthy despite the economic pressures on the region's business
sector.

Lease features are satisfactory. They include the city's covenant
to budget and appropriate sufficiently for lease rental payments, a
requirement for rental interruption insurance, and the use of
essential city properties as security for the lease revenue bonds. The
bonds will refund the authority's $62.3 million in outstanding lease
revenue refunding and capital improvement bonds, series 2007,
previously rated by Fitch 'A+' with a Stable Outlook. The bonds will
also refund $3.3 million in outstanding lease revenue bonds, series
1998 (Capital Improvements and Refinancing Project), not rated by
Fitch. For the series 2008 bonds, the city will reinstate in its
entirety the fixed-payor swap associated with the series 2007 bonds.
Bank of America, N.A. is the counterparty.

Modesto is located in California's Central Valley in Stanislaus
County, a region which has experienced significant population growth.
While agriculture remains an important industry, the city's role as a
commercial center for the region diversified its economy somewhat,
creating a source of employment growth which has slowed since fiscal
2006. Assessed values have risen significantly since fiscal 2001,
reflecting the city's affordable cost of living. However, the city's
property market is currently under considerable pressure. The city's
unemployment rate of 9.2% (May, 2008) remains above state and national
unemployment rates reflecting the seasonal agricultural nature of the
regional economy. Modesto wealth levels are below state and national
averages.

The city's financial position is sound although its fiscal 2007
general fund balance represented a decline from fiscal 2006. The
fiscal 2007 general fund balance totaled $14.4 million, representing a
healthy 11.2% of spending. The unrestricted, unreserved general fund
balance of $10.7 million was 8.3% of spending, in line with the city's
policy of maintaining an unrestricted general fund reserve of at least
8% of expenditures. Tax revenue sources are diverse. The city is
projecting that the fiscal 2008 total general fund balance will
decline to $10.5 million or 8.7% of spending. The city is projecting
that its total general fund balances will remain above 8% in fiscal
years 2009-2012.

With this issuance, the direct debt burden remains low at $454 per
capita or 0.6% of market valuation. Overall debt is also low at $1,142
per capita or 1.5% of market valuation. The city does not anticipate
any additional debt needs in the near future.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public web site, 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 Ratings, San Francisco
Alan Gibson, 415-732-1752
Scott Monroe, 415-732-5618
or
Media Relations:
Cindy Stoller, 212-908-0526, New York

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