TEXT-Fitch rates Corpus Christi Business and Job Development, Texas bonds 'AA-'
July 3 - Fitch Ratings assigns an 'AA-' rating to the following Corpus Christi Business and Job Development Corporation (the corporation), Texas' bonds: --$31.5 million sales tax revenue refunding bonds, series 2012 (Seawall project). In addition, Fitch affirms the following outstanding sales tax bonds: --$11.9 million sales tax revenue bonds (baseball stadium project), series 2004 at 'AA'; --$37.5 million sales tax revenue bonds (arena project), series 2002 at 'AA-'; --$33.2 million sales tax revenue bonds (Seawall project), series 2001 at 'AA-' (pre-refunding). The series 2012 bonds are scheduled to sell July 11 via negotiation. Proceeds will be used to refund the outstanding Seawall project bonds (series 2001) for debt service savings and pay related costs of issuance. The Rating Outlook is Stable. SECURITY: The bonds are secured by a first lien from voter-approved, dedicated 1/8 of 1% sales tax levies for the baseball stadium, arena, and seawall projects. The higher rating for the baseball stadium sales tax bonds reflects the stronger debt service coverage and shorter maturity schedule. KEY RATING DRIVERS: MODEST IMPROVEMENT OF SALES TAX BOND COVERAGE: Strong sales tax performance that continues to exceed budget has bolstered revenues to pre-recessionary levels. Subsequently, debt service coverage has improved modestly, but remains generally in line with historic norms. ECONOMIC SECTORS EXPANDING: Much of the current commercial/industrial development underway or planned revolves around the large petrochemical industries, refineries, associated oil/gas support industries, and shipping/port activity that have traditionally anchored the Corpus Christi economy. The city serves as a regional employment center, and while not immune from the effects of the economic downturn, unemployment rates have remained below state and national averages. CITY'S STABLE FINANCIAL PROFILE: General fund reserves remain comfortably above the city's minimum 10% fund balance policy, enabled by management's conservative and prudent financial practices. General fund liquidity is sufficient. The maintenance of sizable reserves in each of the sales tax funds provides a cushion against possible downward economic pressures and subsequent slowdowns in sales tax collections. DIVERSE TAX BASE: Modest TAV growth in fiscal 2012 reversed the prior year's 4% loss; a moderate gain is projected for fiscal 2013. The city's tax base is diverse, generally stable, and has historically experienced healthy rates of growth. Taxpayer concentration is minimal. BELOW AVERAGE SOCIO-ECONOMIC INDICATORS: Area population growth trends are modest and below those of the state; income/wealth levels are below state and national levels. MODERATELY HIGH OVERALL DEBT: Overall debt levels are moderately high, although the city's debt profile is characterized as moderate, aided by considerable self-supporting debt. No further leverage of any of the dedicated sales taxes is planned. CREDIT PROFILE In two separate votes, city residents approved three individual dedicated sales tax levies, equal to 1/8 of 1% each, for tourism projects: a 10,000 seat arena adjacent to the city's existing downtown convention center, seawall improvements along the city's bay front, and a 5,000 seat minor league baseball stadium. The arena serves as a home venue for several sporting teams and the men's and women's basketball teams of Texas A&M University - Corpus Christi, and is also a venue for concerts and convention center related events. The stadium has been leased to Round Rock Baseball Inc., owners of the Corpus Christi Hooks, an 'AA' franchise of the Houston Astros. Under the terms of the 15-year lease, the company serves as the exclusive manager and operator of the stadium and is responsible for the operations and maintenance of the facility. The arena and seawall taxes were approved in 2000 to be levied for 25 years and the stadium tax was approved in 2002 for 15 years. The corporation was established in April 2000, and its purpose is to administer business development and job creation within the city. The five-member board of directors is appointed by the city council for two-year terms. The city maintains oversight and control of corporation financial and debt activities, including the issuance of corporation debt. STRENGTHENED SALES TAX PERFORMANCE MODESTLY BOOST COVERAGE Given strong, recent sales tax revenue trends that have exceeded budgeted since fiscal 2011 and relatively level debt service for all series through maturity, coverage has improved modestly but generally remains in line with historical trends. All three taxes are applied to the same transactions as the city's general purpose sales tax. The baseball stadium sales tax bonds enjoy higher coverage levels, equal to approximately 2.4x based on fiscal 2011 sales tax collections. Coverage for the arena project sales tax bonds is around 1.5x while the series 2012 Seawall project sales tax refunding bonds project a slightly higher coverage levels of 1.8x given the additional debt service savings. Sales tax revenue performance has historically been steady with an average annual increase of 2.4% over fiscal years 2006-2011. Nonetheless, recent growth trends have been strong, returning to pre-recessionary highs registered in fiscal 2008 and 2009. Each dedicated sales tax levy generated about $5.6 million in fiscal 2011, which is up nearly 10% from a comparable decline in fiscal 2010. Year-to-date sales tax revenue trends for fiscal 2012 also remain strong with monthly collections as of May 2012 exceeding the prior year by about 13%. Additional gains made in sales tax revenues may improve coverage over the near term, although further financial flexibility is maintained through the availability of sizable reserves in each of the sales tax funds. ECONOMIC EXPANSION EVIDENT Situated on the Gulf Coast, Corpus Christi is the eighth largest city in Texas and serves as the regional economic center for a 12-county area. With unemployment registering 6.3% as of February 2012, the city has experienced solid year-to-date employment gains that have outpaced local labor force growth, exceeding those of the state and U.S. Local wealth levels are below average, although area cost of living is relatively low. The city's economic base consists primarily of petrochemical and shipping, tourism, agriculture, higher education and the military. Fitch considers the diversity of the area economy a positive credit factor as it can more easily weather economic disruption in specific sectors. Management reports various commercial/industrial projects underway or planned, which generally will capitalize upon the area's traditional economic strength in the energy sector and associated industries. Of note is the Las Brisas development (a coke-fired electric power plant) which will eventually be added to the city's tax rolls and Tianjin Pipe (a steel pipe mill), a $2 billion project adjacent to the Port of Corpus Christi (the port) that has recently broken ground. It is projected to be one of the largest Chinese investments in the U.S., adding 600 permanent jobs to the area. In addition, there has reportedly been an uptick in economic activity given the city's location adjacent to a relatively recent oil/gas reserve discovery (the Eagle-Ford Shale) and its role in oil/gas shipping, processing, and support industries. The port ranks as the sixth largest in the nation and 44th in the world based on tonnage. The Corpus Christi Army Depot is the largest industrial employer in South Texas and is reported to be adding up to 1,000 employees over the near term; several U.S. Navy installations are also located in the area. Tourism is also an important component of the economy, with Padre Island National Seashore and Mustang Island State Park as leading area tourist attractions. TAX BASE GAIN ANTICIPATED IN FISCAL 2013 The tax base is sizeable at nearly $18 billion in market value. Taxpayer concentration is minimal at 5.5% for fiscal 2012. Tax base gains have historically been solid, averaging about 8.5% annually from fiscal years 2006-2010. TAV declined a modest 4% in fiscal 2011, but returned with a modest 1.5% gain in fiscal 2012, attributable in large part to additional commercial/retail development. Preliminary information from the Appraisal District reflect TAV growth of approximately 5% in fiscal 2013, although city officials conservatively budgeted a more modest 2.5% gain. Given the reported level of economic activity in the area, Fitch considers this projection reasonable. STANDARD LEGAL PROVISIONS Legal provisions for the series 2012 Seawall project bonds differ slightly from those of the two outstanding series in that a springing debt service reserve fund (DSRF) will be established rather than a required reserve fund (the DSRF for the outstanding series 2001 Seawall project bonds was funded with an Ambac surety). Pledged revenues for each fiscal year must fall below 1.35x average annual debt service (AADS) for two consecutive years before a DSRF is required (unless the ratio falls below 1x at which time the reserve requirement will began the next fiscal year). Otherwise, the two indentures for the outstanding arena project and baseball stadium share similar legal requirements, including a standard debt service reserve fund and an additional bonds test of 1.25x maximum annual debt service, although no additional leveraging is anticipated for any of the taxes. All three indentures allow the use of sales tax revenues for related construction projects not financed with bond proceeds. In addition, the flow of funds for the baseball stadium sales tax bonds provides for the use of up to $500,000 annually for affordable housing purposes but only after payment of debt service and construction fund requirements have been met. STABLE FINANCIAL PROFILE PROJECTED Management projects break-even results or a modest surplus at the close of fiscal 2012 year-end, assisted by solid sales tax revenue performance that allowed for some increased spending during the year. By fiscal 2012 year-end, reserve levels are projected to remain comparable to those in fiscal 2011 that equaled a $28.4 million unrestricted general fund balance or about 14% of spending. For fiscal 2013, proposed general fund spending of approximately $205.2 million reflects a 4.5% year-over-year increase. Balanced operations are supported by projected revenue growth in property and sales taxes that is targeted largely for salary increases and totals nearly $3 million with an additional $1 million expected to be added to reserves. A total of $31.1 million is anticipated to be maintained in general fund reserves per the city's multi-year forecast given the expectation of balanced operations through fiscal 2015. MODERATELY HIGH OVERALL DEBT Overall debt levels are moderately high at 5% of market value and $2,900 on a per capita basis, primarily due to debt of the large number of school districts and the local community college. Payout is above average with 60% principal retired in 10 years. City officials are considering approaching voters this November for additional GO authorization in the amount of $45 million-$55 million to fund future capital projects. In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, Case-Shiller, LoanPerformance, Inc, and IHS Global Insight. 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. 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
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