Fitch Rates Lincoln County, NC $20MM GOs 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA' rating to the following Lincoln County, North Carolina (the county) bonds:

--$19.8 million general obligation (GO) refunding bonds, series 2012A.

The bonds are expected to sell via competition on Feb. 7th. Proceeds will refund certain outstanding GO debt.

In addition, Fitch affirms the following ratings:

--$102.5 million outstanding GO bonds at 'AA'.

--$18.2 million outstanding certificates of participation (COPs) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are secured by the county's pledge of its full faith and credit and unlimited taxing power. The COPs evidence proportionate and undivided ownership interests in the installment payments to be made by the county pursuant to an installment financing agreement between the county and the Lincoln County Public Facilities Corporation (LCPFC). The installment payments are subject to annual appropriation. The county has executed a deed of trust that granted a lien on the new county jail facility and new social services building.

KEY RATING DRIVERS

SOLID FINANCIAL CUSHION: The county has maintained sound reserves despite recent fund balance reductions. Expenditures have increased above the revenue growth rate, although the county retains revenue raising flexibility.

POSITIVE DEBT PROFILE: Low debt levels should remain consistent or escalate only modestly, given prospects for population growth and manageable capital plans. Rapid amortization contributes to moderately high debt service requirements as a percent of expenditures.

LIMITED ECONOMY WITH EXPANSION POTENTIAL: A manufacturing-focused economy reflects the volatility of that sector and features below-average economic indicators relative to the state and nation. Proximity to Charlotte and access to major transportation infrastructure support growth prospects.

APPROPRIATION RISK FOR COPs: The 'AA-' rating on the COPs reflects that annual installment payments equal to debt service are subject to appropriation. Mortgaged property consists of essential government assets, providing sufficient incentive to appropriate.

CREDIT PROFILE

NARROW ECONOMY BEGINNING TO DIVERSIFY

Lincoln County, with an estimated 2010 population of 78,265, is located in the western portion of North Carolina, approximately 30 miles northwest of the city of Charlotte (GOs rated 'AAA' with a Stable Outlook by Fitch). The eastern portion of the county, particularly the area around Lake Norman, has proven a desirable commuter suburb of Charlotte. As a result, the population has increased over the last decade at almost triple the national growth rate, although the county reports that growth subsided when the economy weakened.

The manufacturing sector remains a dominant influence on the local economy accounting for half of the top employers, although a significant portion of employment declines since 2007 is due to downsizings in the volatile furniture and textile industries. The major economic development announced in 2011 consists of a manufacturing concern, AptarGroup, with a $53 million investment. In addition, the county's newly opened 235 acre Airlie Business Park is geared toward a mixture of light manufacturing and commercial enterprises. The manufacturer HYDAC Technology Corp. has signed on as a tenant, with a $12 million investment.

The county has experienced some success creating jobs within the education and health sector, generally viewed as more resilient during periods of economic strain. The $90 million Carolina Medical Center - Lincoln Hospital opened in 2010. The November 2011 unemployment rate of 10.4% is still high yet has improved from the 11.7% of a year ago. Wealth levels continue to improve but are below the state and national average.

STABLE FINANCIAL POSITION

Reserve levels have remained sound, despite planned drawdowns that permit the county to continue to augment expenses in a period of declining revenue attributable to a slowing economy. Needs associated with the increased population and a commitment to public safety have driven the county's decision to increase spending above the revenue growth rate. Audited fiscal 2011 results show a modest use of reserves and a still healthy unrestricted general fund balance of $14.2 million or 15.7% of expenditures and transfers out, when adjusted for transfers out attributable to bond refundings. Including the reservation for state statute, which includes most receivables, the balance equaled 20.6% of spending in fiscal 2011.

Fiscal 2012 year-to-date revenues are on target and expenditures are below budget. The county anticipates concluding fiscal 2012 flat or with the minimal use of reserves, below the nearly $3 million that was appropriated in the budget process. Fitch believes that the county retains sufficient financial flexibility, given its competitive tax rate and the relatively modest expenditure reductions that have been implemented to date.

MODEST LONG-TERM OBLIGATIONS

The favorable debt profile includes low debt levels, modest future capital issuances, and rapid amortization. The overall debt burden is $1,666 on a per capita basis and 1.6% of taxable assessed value. The fiscal 2012 through fiscal 2017 county tax-supported capital improvement plan totals a moderate $38.8 million. About $25 million of the plan consists of retrofitting certain county buildings, which the county will probably postpone until the economy improves. Debt issuance for other projects totals a modest $4.6 million. The plan excludes school capital needs, primarily consisting of a new $13 million elementary school to be deferred until enrollment growth resumes. Debt carrying charges consume a moderately high 18.2% of total spending as a result of rapid principal pay-out at 70.8% within ten years.

Pension obligations remain well managed. Employees participate in the statewide Local Governmental Employees' Retirement System, which remains nearly fully funded at 95.4% as of Dec. 31, 2010. The county's fiscal 2011 contribution of $1.3 million equaled a modest 1.4% of general fund spending. In addition, the county administers retirement benefits for qualified sworn law enforcement officers. The county funds this plan on a pay-as-you-go basis, as is common across the state. Fitch views the plan's unfunded liability of $1.2 million, which is minimal when compared to the county's resources, as a positive. OPEB obligations do not pressure the credit.

The COPs are secured by installment payments made by the county to the trustee, as assignee of the Lincoln County Public Facilities Corporation (LCPFC), which is a nonprofit corporation created to promote the general welfare of county citizens by assisting the county in financing public projects. Payments are equal to debt service on the COPs and are subject to annual appropriation. The LCPFC assigns its rights, title, and interest to the trustee including the right to receive the county's installment payments and its rights under the deed of trust, including the LCPFC's rights, title, and interest to the mortgaged property. The county's jail and social services building serve as collateral for these COPS, and their essentiality to the county provides incentive to budget and appropriate installment payments.

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, and the National Association of Realtors.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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