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Harris Co. M.U.D. 500 (Master), TX -- Moody's assigns A3 to Harris Co MUD No. 500 (Master), TX's contract tax revenue bonds

·13 mins read

Rating Action: Moody's assigns A3 to Harris Co MUD No. 500 (Master), TX's contract tax revenue bonds

Global Credit Research - 21 Aug 2020

New York, August 21, 2020 -- Moody's Investors Service assigns A3 to Harris County Municipal Utility District (MUD) No. 500 (Master), TX's $6.5 million in Taxable Contract Revenue Bonds (Water, Sewer and Drainage Facilities), Series 2020. We maintain the A3 rating on outstanding parity debt.

RATINGS RATIONALE

The A3 rating reflects the Master District's large tax base that is nearing full build out and adequate reserve position, which includes a year's worth of maximum annual debt service (MADS) on hand. The district has an elevated debt burden, which will remain at double-digit levels given plans to issue in the next 12 to 18 months. Typical of a MUD, the district does not have any employees, and therefore, no pension plan or burden. The rating also incorporates exposure to two participants that are in early stages of development and are responsible for around 29% of contract tax debt outstanding.

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 for operations, and these revenues are typically more resilient to economic volatility than other taxes and fees. 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 typically does not assign outlooks to local government credits with this amount of debt outstanding.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Significant tax base growth

- Material increase in reserves as a percent of revenues

- Moderation of the debt burden

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Trend of tax base contractions

- Declines in reserves - Debt burden increase LEGAL SECURITY

The bonds are payable from and secured by unconditional obligations of the participants to make contract payments pursuant to the master district contract. Each participant has agreed to pay a pro rata share of debt service on the bonds based upon gross certified assessed valuation of each participant as a percentage of the gross certified assessed valuation of the service area. Each participant is obligated to make such payments from the proceeds of an annual unlimited ad valorem tax, from revenues derived from the operations of its water distribution and wastewater collection system, or from any other lawful source of income. Bondholder security is additionally enhanced by the presence of a debt service reserve that is required to be funded to an amount equal to one half of the maximum annual debt service requirements on the contract revenue bonds then outstanding and will be held by a trustee.

USE OF PROCEEDS

Proceeds from the series 2020 bonds will be used to reimburse developers for various capital improvements.

PROFILE

The District is located within the extra-territorial jurisdiction of the City of Houston and lies wholly within Harris County, Texas. The District is accessed via State Highway 290, exiting Barker-Cypress road, and traveling south to Tuckerton Road. The Master District also serves as a provider of regional water, sanitary sewer, drainage, park/recreational and road facilities to the approximate 2,124 acre service area comprised of the District, HCMUD 501, HCMUD 502 and HCMUD 503, all of which are participants.

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. An additional methodology used in this rating was Public Sector Pool Programs and Financings Methodology published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1171420. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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 Lauren Von Bargen Additional Contact Regional PFG Northeast 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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