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HomeMy WebLinkAboutStandard Poor's Finance Rating Pr,lIIary Credit Analysts: Corey Friedman Chicago (1 I 312-23POIO.' corey-friedman@ sta.ndarda ndpoors .com Secondary Credit AnalySts: Helen Samuelson Chicago (1)312-233-7011 hereri_sainuelson~ stCl.ndargClQdpoors.com RatingsDirect Publication Date Dec. 19, 2006 Jeffersonville Building Corp., Indiana \ Credit Profile '^ <'"',_v..,,,,,,,~,,,~",,,',.<,~ # -, ",':,~':"~0""*t~"?',,,\"":,~';'cf,,,,,,,,,:,,,,",,~,,,,,,,,,,M"<!;.&'""~""';'><){'=>"";"''':;::;;A:;';>;''i",,,,,,,,';;::;~';-;''.t;)~';C~'A:f,ln,;';;''''''~::'::;~1'Fv~~:",,^,,"%t^'\tt)':t~,*~'_:;;~''\TIi~A,;t;'''C;;:(+~I~?'~~f'-1f,.;i$>0::,- US$lO.805mil1 st rntg bnds ser2006A.-Gdue 08/15/202(3 . Long Term Rating . ",~,i:''Y,:::?:':-'''~'':'',,,- 'i"::'1<<"";p,~"_"!"~~~""r''''''V}~-<''J?"it,!')',,~,~,,?!,''"l'''''''''')<':>'f ....,,, 'N'evr'-M''''.'''M ,'.', ....,. .' A-/Stabie JeffersonvllleRedev Auth IJeffersonvilfeR'edev GOlT]m) Ise rent ~fdgbndsIJeffersonvnTeR~dev C';~~l'~;'2004d~;" 01/01/2005-2016 Term Rating Rationale The 'A-' rating on Jeffersonville Building Corp., lnd.'s 2006A-2006C bonds, supported by the city of Jeffersonville, is based on the city's absolute and unconditional obligation to levy an ad valorem property tax on all taxable property in the city, to make lease payments if tax increment financing revenues are insufficient. The rating also reflects: · Access to the Louisville, Ky., MSA's deep and diverse economic base; and · Solid financial position following the statewide property tax reassessment in 2003; and · Moderate debt position. Below-average income levels and per capita market value levels limit the city's strengths. The bonds, although paid from tax increment revenues, are secured by lease rental payments to be made by Jeffersonville to the trustee. Lease rentals are payable from unlimited ad valorem property Jeffersonville Building Corp. , Indiana Jeffersonville taxes to the extent that tax increment revenues are insufficient. Lease payments in support of debt service for the two new fire stations and a new city services building cannot be made until the city has completed the infrastructure improvements, which is expected by fall 2007. Interest on the bonds is capitalized six months beyond project completion. Construction ofthe new facility will be managed by a construction management company with extensive experience with municipal building projects. Jeffersonville has a 5% contingency built into its project costs, which the city has found to be sufficient cushion in the past. Each contractor is required to have insurance coverage that covers the value of the property. Given these factors, Standard & Poor's Ratings Services considers construction risk to be minimal. Jeffersonville is located just across the Ohio River from the city of Louisville, Ky. (Louisville and Jefferson County Metropolitan Government, 'AA+' GO rating, stable outlook), and city residents enjoy access to a continually diversifying local area economy, which currently offers a wide variety of employment opportunities in services (31 % of the labor force), trade (18%), government (15%), and manufacturing (13%). Consequently, the local economy weathered the nation's most recent economic downturn particularly well. The city's unemployment rate (5.3% in 2005) is on par with the state's average. Income levels for the city have historically remained below average, with median household effective buying income at 89% of state and national averages. The combination of affordable housing and access to a diverse local area economy has sparked population growth and gains in the property tax base. Population grew by 25% in the 1990s to 27,362; management has since estimated that it has increased to 28,620. Postreassessment property tax base figures reveal a 2006 assessed valuation (A V) of $949 million. A V had experienced average annual increases ofahealthy 6.5% between tax years 2002 and 2006. The year-to-year changes in A V include some effects from the statewide reassessment period. Additional growth in the tax base reflecting suburban growth out of the Louisville MSA. The city's 10 leading taxpayers make up a low 9% of total A V. Despite significant delays in property tax receipts related to the statewide property tax reassessment, the fmancial position remains sound. The city mailed out its property tax bills for fiscal 2003 in October 2004, about 29 months behind schedule. To avert cash flow shortages, the city borrowed $10 million from Bank One in the form of a tax anticipation warrant in fiscal 2003. The city extended the due date of the warrant twice to December 2004. The city ended fiscal 2004 (Dec. 31) with an audited cash balance of nearly $7 million, or a good 54% of expenditures in the general fund. The city's unaudited cash result in fiscal 2005 showed a $4.0 million drawdown in the general fund due to delays in the city receiving its fmal tax payment. The city received the payment in early fiscal 2006. The city projects ending fiscal 2006 with a slight general fund surplus. The tentative fiscal 2007 budget shows a small general fund surplus. The city's financial management assessment is standard. Overall debt levels are moderate at $1,827 per capita and 5.5% of market value. The city is not engaged in any swaps or variable-rate debt transactions. The city's may address future capital needs by issuing about $8 million in additional debt. However, plans are not definitive at this time. Outlook The stable outlook reflects the expectation that the city's fmancial position will remain solid despite delays in receiving tax payments. Rating stability is also grounded in the city's participation in the Louisville, Ky. MSA. Standard & Poor's [ ANALYSIS 2 Jeffersonville Building Corp. , Indiana Jeffirsonville Construction Risk Some ofthe ratings affirmed with this release have been updated to remove the provisional qualifier formerly used during the construction period (before the city begins making lease payments). Standard & Poor's considers the construction risk associated with those bonds to be minimal. While construction risk does stilI exist due to the requirement that the leased facility must be sufficiently occupied before lease payments may begin, a number offactors mitigate this risk, including: · The essentiality and straightforward nature of the project; . Capitalized interest providing more than a six-month cushion between the expected completion date and the first lease payment requiring occupancy; · A contingency reserve deemed appropriate for the project; · Builder's risk insurance that by state law must equal 100% of the construction cost; and · A lease term that extends beyond the term of the bonds, allowing for additional financing capacity if needed. Circuit Breaker Legislation Standard & Poor's is reviewing legislation recently enacted by the Indiana General Assembly mandating the application of a 2% "circuit breaker" property tax credit to all real and personal property throughout state. We believe the legislation could affect a local unit's ability to repay debt service on property-tax-backed debt obligations (GO and lease rental obligation), as the tax rate cap applies to both operating and debt service property tax mills. Outstanding debt does not appear to be grandfathered. Despite the fact that the tax cap does not take effect for issuers outside Lake County until 2008-2010, we are also aware that bond counsel opinions are now being issued that reflect the limited-tax effect of the circuit breaker legislation. Our current limited-tax GO criteria dictates that no distinction between limited-tax and unlimited-tax ratings will be made on issues rated 'A-' or higher; rating distinctions may be made at lower rating levels depending on fmancial flexibility. However, as our understanding of the true effect of the legislation evolves, this opinion could change. The city of Jeffersonville does not expect an impact from this legislation at this time because it levies below 2%. Financial Management Assessment The city of Jeffersonville's management practices are considered standard under Standard & Poor's Financial Management Assessment (FMA). An FMA of standard indicates that the finance department maintains adequate policies in most but not all areas. The city uses historical analysis and accounts for upcoming onetime expenditure items when budgeting and monitors the budget at least monthly, with monthly reporting of results to the city council. After the initial budget is created, the budget is amended as needed. The city's investment policies follow the state guidelines, but no formal reporting of holdings is done. The city does not have any multiyear [mancial and capital plans. The city also lacks a formal debt policy. Ratings Detail (As Of 19-Dec-2006) ~,,,=,<,,,',-,,,,,~;<,,,:,,,;,':''::':"':''''~,''',~"''~.___,'''~~,:,,,''''~''','':<>::,,,,~'''.'''l:;'~)v.,<~,"<,_~,,,,,,,~''''''''''''\'''t'?''''''~~~''''~~W~ Jeffersonville Oldg Corp. Indiana Jeffersonville, Indiana ~-"'>'"'''-:~,'~:'_'''''c~;'':'.,~,r-'''''H''''''~:''';.:'''~~'~'F"~"':""""""~';~~~,~~<e'_~""O':/""~~",'1'!~",,'#qo<,~~.Jm:."'0';~~~~",~~;i;{;q.?<<lt,;;?,'F'A -"_)"'';;;'i<"?,","";''O:^""",,,,..",,-7#P:~;9''\N:'NW'!<ZI'''~~~W~:\'14I:~~ffi'I'\~W;:-\"N0'-i';1;~C:"",;;::l;;FN Jeffersonville BldgCorp IJeffersonville) 1st mtg bnds ser 2006A-C due 08/15/2026 Long Term Rating . A:/Stabl~ www.standardandpoors.com 3 Published by Standard & Poor's, a Division of The McGraw-Hili Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY 10020. Editorial offices: 55 Water Street, New York, NY 10041. Subscriber services: 11) 212-438-7280. Copyright 2006 by The McGraw-Hili Companies, Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by Standard & Poor's from sources believed to be reliable. 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The McGraw'HiIi Companies - ~ ~I 130 East Randolph Street Suite 2900 Chicago, IL 60601 tel 312 233-7001 reference no.: 811077 STANDARD &POOltS December 19, 2006 City of Jeffersonville 500 Quartermaster Court Jeffersonville, IN 47130 Attention: Mayor Robert Waiz, Jr. Re: US$1 0,805,000 Jeffersonville Building Corporation, Indiana, First Mortgage Bonds, Consisting of: $4,010,000 Series 2006A, $2,180,000 Series 2006B and $4,615,000 Series 2006C, dated: Date of Delivery, due: August 15, 2008-2026 Dear Mayor Waiz: Pursuant to your request for a Standard & Poor's rating on the above-referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "A-". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are finaL If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial inform~tion as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial Mayor Robert Waiz, Ir. Page 2 December 19, 2006 information and the documents. 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