TEXT - Fitch affirms Henderson, NC COPs

Fri Jan 11, 2013 4:11pm EST

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Jan 11 - Fitch Ratings has affirmed the following ratings for Henderson
County, North Carolina (the county):

--$49.1 million certificates of participation (COPs), series 2005A and series 
2006A at 'AA-';

--Implied general obligation (GO) rating at 'AA';

The Rating Outlook is Stable.

SECURITY 

The COPs are secured by installment payments made by the county, subject to 
annual appropriation. The COPs are additionally secured by a mortgage lien on 
certain real property, including school facilities, a courthouse, and other 
governmental buildings.

KEY RATING DRIVERS

SOUND RESERVES: The county has consistently generated surpluses, increasing 
already high general fund balance levels.

LIMITED ECONOMY OFFSET BY CONSISTENT JOB GROWTH: The economic base, while 
limited in breadth, has regularly exhibited job growth and unemployment levels 
that compare favorably to the state and nation.

FAVORABLE DEBT PROFILE: The debt burden is low and future financing requirements
are minimal. Post-employment obligations do not pressure the credit.

COPs APPROPRIATION RISK: The 'AA-' rating on the COPs reflects the appropriation
risk inherent in the installment payments to be made by the county to the 
trustee, the strong essentiality of the respective assets under the lien, and 
the general creditworthiness of the county.

CREDIT PROFILE

The county is located in the southwestern part of North Carolina, approximately 
25 miles south of Asheville, North Carolina, and 40 miles north of Greenville, 
North Carolina. Population growth is sound, increasing 21% since 2000 to 107,927
residents in 2012.

LIMITED ECONOMY YET HEALTHY JOB GROWTH

The county's economy centers on manufacturing, tourism, and agricultural 
production. Henderson has enjoyed average annual employment growth of 1.2% over 
the past decade, comparing favorably to the nation's rate of 0.4%. The county's 
economic incentive development initiatives resulted in both Legacy Paddlesports 
and Sierra Nevada Brewing Company naming the county as the location for their 
new facilities. Combined, the companies plan to invest over $110 million and add
over 200 jobs to the economy over the next several years, with wages in excess 
of the county's average. 

County wealth levels are slightly below average, with the per capita personal 
income 99.5% and 86.3% of state and national averages, respectively. The 
county's unemployment rate continues to recover, with the October 2012 rate of 
6.5% well below the 7.9% rate of the prior October and below comparable state 
and national averages of 8.8% and 7.5%, respectively.

Taxpayer concentration is low, with the top 10 taxpayers representing less than 
4% of assessed value (AV). AV decreased 8.6% in fiscal 2012, and management 
currently projects a slight decline in AV for the next reappraisal scheduled for
2015. 

HEALTHY RESERVE LEVELS

Due to positive budgetary variances, financial operations in fiscal 2012 yielded
an operating surplus (after transfers) of $3.7 million or 3.6% of general fund 
spending. This is the fifth consecutive operating surplus for the county, and 
adds to an already ample general fund balance, which increased to $40.8 million.
The unrestricted general fund balance was $33.7 million, or equal to a robust 
32% of spending, well above the county's 12% fund balance policy. In addition, 
the county recorded a $6.7 million (6.6% of spending) stabilization for state 
statute reserve in fiscal 2012, which Fitch considers an additional source of 
financial flexibility.

Property taxes account for approximately 57.9% of total general fund revenue. 
The positive fiscal 2012 year-end result was aided by an 11.2% increase in the 
property tax rate to $0.5136 per $100 of AV, which helped offset the 8.6% 
decline in fiscal 2012 AV. The county's tax rate remains one of the lowest among
surrounding counties. 

EXPECTATIONS FOR FISCAL 2013 BUDGET

The fiscal 2013 budget includes a $5.6 million general fund balance 
appropriation (5.2% of general fund spending). The budget holds general fund 
revenue flat over the prior year, although management reports an uptick in sales
tax revenue (16.5% of general fund revenue) for the first six months of the 
fiscal year, tracking $600,000 above budget. The budget does not include further
expenditure reductions (a 7.5% across the board expenditure reduction was 
implemented in fiscal 2012). Management anticipates using a modest $2.1 million 
of fund balance for one-time capital needs, which Fitch is comfortable with 
given the ample fund balance cushion currently available to the county. Fitch 
expects fund balance levels to remain well above the county's 12% policy.

REASONABLY STRONG DEBT POSITION

Overall debt levels are low at $1,175 per capita and 1% of market value. Rapid 
amortization, at 86% of principal retired within 10 years, contributes to the 
somewhat high debt service burden, equal to 14.7% of expenditures. Future 
capital needs are minimal.

MODEST POST-EMPLOYMENT REQUIREMENTS

Long-term liabilities relating to employment benefits are not expected to 
pressure future operations. The county is a member of the state-wide Local 
Governmental Employees' Retirement System (LGERS), a cost-sharing, 
multiple-employer plan. LGERS remains nearly fully funded at 94% as of Dec. 31, 
2011. The county's pension contribution to LGERS is very manageable, at 
approximately 2.1% of fiscal 2012 general fund spending. 

The county also provides other post-employment benefits (OPEB) to retirees, to 
which the county contributed $574,463 in fiscal 2012 (less than 1% of spending).
The UAAL liability equaled a low 0.1% of MV as of Dec. 31, 2010. 

Carrying costs for debt service, pension and OPEB equaled a moderate 17% of 
fiscal 2012 general fund spending.
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