UPDATE 5-Meal-kit maker Blue Apron goes public, demand underwhelms as Amazon looms
* Stock scheduled to debut on NYSE on Thursday (Adds IPO pricing, Breakingviews link)
Oct 30 - Fitch Ratings has assigned an 'A+' rating to the following San Benito, Texas (the city) limited bonds: --$6.09 million general obligation (GO) refunding bonds, series 2012; --$2.9 million combination tax and limited pledge revenue certificates of obligation (COs), series 2012. The bonds are scheduled for negotiated sale on Nov. 5. Proceeds of the GOs will be used to refund certain outstanding bonds for interest cost savings. Proceeds from the COs will be used for street improvements. In addition, Fitch affirms its 'A+' on outstanding limited tax bonds of the city. The Rating Outlook is Stable. SECURITY The GO bonds and COs are secured by an ad valorem tax levied on all taxable property within the city, limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally secured from a limited subordinate lien pledge of the net revenues of the city's waterworks and sewer system. KEY RATING DRIVERS STABLE FINANCIAL PROFILE: The key credit strength is the city's sound financial performance despite some fluctuation in operating revenues and dependence on economically sensitive revenue. The city's ability to continue its practice of registering modest annual surpluses after transfers and maintaining adequate operating reserves is fundamental to rating stability. IMPROVING SALES TAX REVENUES: Sales tax revenues, a major source of operating revenues, have increased in the last two fiscal years following a recessionary decline. MODEST, DIVERSIFIED TAX BASE: The city's assessed valuation continues to increase modestly. Diversity in the area economy, together with a relatively stable housing market and continuing development support projections for continued stability in the tax base. WEAK SOCIECONOMIC INDICATORS: The city's low income levels, high poverty rate, and above-average unemployment rate are subpar but fairly typical of border communities in the Rio Grande Valley. MANAGEABLE DEBT; NO CIP: Overall debt levels are moderate while the direct debt burden is low due to substantial support from net utility revenues. Fitch notes as a credit weakness the lack of formal capital planning. Amortization of tax-supported debt is above average which should accommodate additional debt as needed at least for the near term. CREDIT PROFILE SMALL RIO GRANDE VALLEY COMMUNITY The city is located in Cameron County at the southern tip of Texas in the Lower Rio Grande Valley, situated between the cities of Harlingen and Brownsville. With an estimated 2012 population of 25,000, population has grown a modest 8% over the past decade. The city's economy is based on agriculture, retail/service industries, manufacturing, and tourism. Wealth and income levels in the city are substantially below state and national levels. Per capita money income is less than 50% of the state and national averages, and the city's per capita market value is a low $28,000. Unemployment remains comparatively elevated at 10.6% in Aug.ust 2012, with year-over-year improvement from 11.4% due to a 3% decline in the labor force outpacing a decline in employment. The city's unemployment rate consistently tracks just above the state and national rates. GROWTH IN ASSESSED VALUE CONTINUING TAV grew at a 3.3% compound average growth rate from fiscal years 2007-2011 but slowed to 1.2% growth in fiscal 2012 and 0.4% growth in fiscal 2013 to $587 million. Officials report residential development is picking up, evidenced by several multi-unit developments planned or underway and continuing build-out of an existing single-family subdivision. Modest development coupled with a relatively stable housing market supports Fitch's expectation for continued stability in TAV over the near- term. The top ten 10 taxpayers comprise a moderate 11% of fiscal 2011 TAV, with AEP Texas Central (a public utility company) the largest payer at 2.2%. STABLE FINANCIAL PROFILE DESPITE SOME REVENUE WEAKNESS Four of the last five fiscal years have yielded positive operating results after transfers and maintenance of available fund balance at above 20% of spending. Sales taxes, which comprise nearly one-third of operating revenues, declined by a cumulative 10% from fiscal years 2008-2010 before rebounding 4.3% in fiscal 2011. Other revenues, namely municipal court fines and charges for traffic crossing the Los Indios international bridge, also declined in fiscal 2011. Property tax receipts during this period have remained stable. City officials cut fiscal 2011 expenditures and transfers 5% by foregoing pay increases to staff and reducing the level of capital outlays. Under-spending of the budget offset the revenue weakness mentioned above, allowing the city to record a modest $101,000 operating surplus after transfers and conclude fiscal 2011 with an unrestricted general fund balance of $2.2 million (the sum of committed, assigned, and unassigned per GASB 54) or 22.6% of spending. The fiscal 2012 budget shifted 6-cents (10%) of the tax rate to the general fund from the debt service fund. With continuing cost control measures, officials expect audited results will show a $245,000 increase to available fund balance. The fiscal 2013 balanced budget increased spending 6.7% from the prior year, adding new positions and providing raises to staff. The budget was funded with a 5.8% increase to the tax rate, which now totals $0.728 per $100 TAV. The new money portion of this issuance will require approximately three cents of the tax rate going forward, as the street improvements to be funded will not be repaid with net utility fund revenues. Fitch notes that the preservation of solid operating reserves is a key factor in the current rating but expects stable financial performance to continue given management's track record of budget balance. AFFORDABLE DEBT BURDEN The direct debt burden is low while overall debt is moderate with about 72% of the city's outstanding debt repaid by net enterprise and special revenues. Debt service supported by taxes consumed a manageable 12% of fiscal 2011 general fund and debt service expenditures and amortization is rapid at 70% retired in 10 years. Water and sewer utility operations remain healthy and net system revenues provided 1.6x coverage of fiscal 2011 tax-backed debt service. Consistent system rate increases have occurred and are planned through fiscal 2014 in line with recommendations from an external rate study; the rate increases are supporting recent plant improvement costs and debt service. The city is in the midst of completing capital improvements to its water and sewer infrastructure as required by the state's environmental agency. Improvements are focused in the historic downtown core area (Phase I) where regulatory infractions were discovered. Broader assessment of system needs in the relatively more modern areas of the city (Phases II-IV) has yet to be undertaken, though management has indicated additional debt issuance will not occur for the next three to four years. Fitch views the lack of a multi-year capital improvement plan with concern, particularly given the uncertainty around costs associated with potential system improvements. Fitch will continue to monitor any new costs that would materially change the debt and/or financial profile of the city. PENSION LIABILITIES NOT A CREDIT PRESSURE The city contributes to two pension systems: the Texas Municipal Retirement System (TMRS) and a Firemen's Pension Fund. Fitch considers the city's funded position adequate for TMRS but weak, though improved, for the Firemen's system at only 59.5% funded as of Dec. 31, 2011, assuming a 7% rate of return. The city has made 100% of the annual required contributions over the last three fiscal years for both plans, which consumed an affordable 5.2% of general fund expenditures. The combined unfunded actuarial accrued liability equals a modest 0.5% of 2013 MV. The city does not offer other post-employment benefits. 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. 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, Zillow.com, 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 U.S. Local Government Tax-Supported Rating Criteria
* Stock scheduled to debut on NYSE on Thursday (Adds IPO pricing, Breakingviews link)
June 28 Dow Chemical Co and DuPont on Wednesday reaffirmed their expectation to close their merger in August.