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Galveston County M.U.D. 56, TX -- Moody's assigns Baa3 to Galveston County MUD 56, TX's GOULT bonds, Ser. 2020; stable outlook

Rating Action: Moody's assigns Baa3 to Galveston County MUD 56, TX's GOULT bonds, Ser. 2020; stable outlook

Global Credit Research - 25 Aug 2020

New York, August 25, 2020 -- Moody's Investors Service has assigned a Baa3 rating to Galveston County Municipal Utility District 56, TX's $16.4 million Unlimited Tax Bonds, Series 2020. Moody's maintains the Baa3 rating on the district's $18 million of outstanding rated debt. The outlook is stable.

RATINGS RATIONALE

The Baa3 rating reflects a small but rapidly growing tax base near Houston (Aa3 stable), as well as moderate top taxpayer concentration. The rating also reflects general fund reserves that are nominally small but healthy in comparison to revenue and expenditures. Further, the rating incorporates narrow reserves in the debt service fund that require a large I&S tax rate increase and capitalized interest to support near term debt service payments. Finally, the rating reflects the very high debt profile and a lack of pension or other post-employment benefit liabilities.

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 Galveston County MUD 56 given sound general fund reserves. However, the situation surrounding the coronavirus is rapidly evolving and the longer-term impact will depend on both the severity and duration of the crisis. A long and severe downturn could cause a slowdown in homebuilding and a reduction in existing property values. If our view of the credit quality of the district changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

The stable outlook reflects our expectation that debt and assessed valuation will grow in a proportionate manner over the next several years, resulting in a high debt burden over the long term as development continues. Additionally, the outlook incorporates that expected AV growth and tax rate increases will allow the general and debt service funds' reserves to remain stable, but any drawdown in either fund balance could pressure the rating.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

Material decline in the debt burden and debt to operating revenues

Improved debt service fund reserves

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

Declining assessed valuation

Draws on fund balance or liquidity in the general fund and/or the debt service fund

Increase in the debt burden LEGAL SECURITY

The outstanding bonds and the Series 2020 bonds are secured by an annual ad valorem tax levied, without legal limit as to rate or amount, against all taxable property located within the district.

USE OF PROCEEDS

Proceeds will redeem the Series 2019 bond anticipation note due October 8, 2020, capitalize 12 months of interest, pay interest for funds advanced by the developers, and pay for other debt issuance costs.

PROFILE

Galveston County MUD 56 constructs water and wastewater infrastructure to serve a residential area located within the boundaries of Texas City (A1), approximately 30 miles southeast of downtown Houston. The district's estimated population is 3,450 and homebuilding within the district is ongoing. Utility operations are provided by Texas City.

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 Guss 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 Tatiana Killen Additional Contact PF General Administration 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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