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Cinco Southwest MUD 4, TX -- Moody's assigns A2 to Cinco Southwest MUD 4, TX's GOULT bonds, Series 2020

·12 mins read

Rating Action: Moody's assigns A2 to Cinco Southwest MUD 4, TX's GOULT bonds, Series 2020

Global Credit Research - 25 Aug 2020

New York, August 25, 2020 -- Moody's Investors Service has assigned an A2 to Cinco Southwest Municipal Utility District 4, Texas' $1.8 million in Unlimited Tax Refunding Bonds, Series 2020. Moody's maintains the A2 rating on outstanding general obligation unlimited tax obligations.

RATINGS RATIONALE

The A2 rating is based on the district's modestly-sized tax base, which is fully-built out, a healthy financial position after a trend of surpluses, and elevated direct debt burden, reflective of both the district's direct debt as well as its proportionate share of the Master's contract revenue bonds. The district is part of a Master District, which provides all regional utility infrastructure. Typical of a MUD, the district does not have any employees, and therefore, no pension plan or burden.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the district. The district relies on utility fees and property taxes for operations, and these revenues are typically more resilient to economic volatility than other taxes and fees. In addition, the district has a healthy reserve position that provides financial flexibility. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the district changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

Moody's generally does not assign outlooks to local governments with this amount of debt outstanding.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Further tax base expansion

- Reductions in the debt burden

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Trend of tax base declines

- Material reductions of reserves

- Increases to the debt burden

LEGAL SECURITY

Principal of and interest on the bonds are payable from a continuing direct annual ad valorem tax upon all taxable property within the district which, under Texas law, is not limited as to rate or amount.

USE OF PROCEEDS

Proceeds from the sale of bonds will be used to refund outstanding series for net present value savings.

PROFILE

Cinco Southwest MUD 4, TX is located approximately 25 miles west of Houston (Aa3 stable), and lies within the boundaries of Katy Independent School District (Aa1 stable). The District is part of a Master District, Cinco Southwest MUD 1 (A1 stable), along with three other districts. The Master provides its participant districts with regional water, sanitary sewer, storm sewer, park, road and other facilities. Development of the District currently consists of 1,691 completed single-family residential lots on approximately 566 acres. Homes constructed within the District have a price range of $150,000 to over $1,000,000. Current population is estimated at 6,800.

METHODOLOGY

The principal methodology used in this rating was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Heather Correia Lead Analyst Regional PFG Dallas Moody's Investors Service, Inc. Plaza Of The Americas 600 North Pearl St. Suite 2165 Dallas 75201 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John Nichols Additional Contact Regional PFG Dallas JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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