2009-11-17 22:50:02 -

Fitch Ratings assigns an 'A' rating to the following issues of Bexar County, Texas (the county).

--$23.9 million tax-exempt venue project revenue bonds (combined venue tax), series 2009;

--$28.3 million tax-exempt venue project revenue bonds (motor vehicle rental tax), series 2009.

Fitch also affirms its ratings on the following outstanding debt of the county.

--$109 million venue project revenue bonds at 'A';

--$676.4 million limited tax bonds at 'AA+',

--$39.1 million unlimited tax bonds at 'AA+';

Both current offerings are scheduled to price the week of Nov. 16 via negotiation. The Rating Outlook on all the bonds is Stable.

The combined venue tax bonds are payable from a senior lien on the county's 1.75% hotel occupancy tax (HOT) and a

junior lien on the county's 5% motor vehicle rental tax (MVRT). The MVRT bonds are payable solely from a senior lien on the county's 5% MVRT. Bond proceeds will be used to finance the construction and improvement of amateur sports projects and tourism projects.

The 'A' rating reflects the county's role as the top tourist destination in Texas, ongoing expansion of hotel room capacity with major convention center and resort hotels, strong voter support for the venue tax extensions and diverse tourism related projects. These positive considerations are balanced against a slow principal pay out and the inherent volatility of the pledged revenue streams during economic downturns. Although debt service coverage is adequate in the current offering, planned annual issuances will lead to considerably leveraged revenue streams. Notably, the county has negotiated long term operating agreements with numerous entities to assume the responsibility of all operations and maintenance costs of the numerous bond-financed projects.
Adequate debt service coverage by pledged revenues is key to preserving the current credit quality.

Bexar County, with an estimated 2009 population of 1.6 million, is home to San Antonio. The local economy is broad, consisting primarily of health care, government, trade, and tourism. The area's health care industry has an estimated annual economic impact of $10 billion. The county's proximity to Mexico is key to international business and trade.

Income levels are generally about 10% lower than the U.S., but only slightly less than state averages. Growth in area income over the past few years has exceeded state and national norms, although the current economic slowdown has slowed this trend; several major commercial and military projects are expected to help stabilize or restore economic growth in the near term. The county's unemployment rate, which totaled 7.2% in September 2009, has increased notably in the current year but remains below the state and national average.

In May 2008, county voters approved the extension of the existing 1.75% HOT and 5% MVRT, originally approved in 1999 to finance the construction of the AT&T Center, home of the NBA Spurs. The extended venue taxes, which are not capped or restricted for specific amateur sports or tourism projects, will finance $415 million in new tourism projects, including San Antonio River projects ($125 million), amateur sports projects ($80 million), rodeo and arena enhancements ($100 million), and cultural arts projects ($110 million). Under the new 2008 indenture, the bonds for amateur sports projects will be payable from a senior lien on MVRTs only. All other bond-financed tourism projects will be secured by a senior lien on HOTs and a junior lien on MVRTs. Although both indentures' revenue pledges are weaker than the original combined revenue pledge, their respective bond sizes allow for comparable debt service coverage under both indentures.

While down in 2009, the growth of the county's venue tax revenues in prior years has been aided by the presence of five of the state's top 10 tourist attractions, including the Alamo, the San Antonio Riverwalk, Sea World, Six Flags over Texas, and the San Antonio Zoo. Prior to 2009, HOT and MVRT revenues had grown by solid compound annual averages of 7.1% and 4.9%, respectively, over the last five years. Notably, in-state residents comprise a large 76% of visitors to the county. Similarly, leisure is the leading purpose for travel to the county at almost 78%, followed by business at 21%. However, room expenditures by business travelers are just as large as tourists' room expenditures, suggesting the preference for high-end accommodations by business travelers.

Due to the current economic slowdown, large variances materialized between the county's HOT and MVRT projections and actual receipts in 2009. For the first 11 months of fiscal 2009, HOT and MVRT receipts are down a notable 14.6% and 6.4%, respectively. Such volatility was also seen in the last economic downturn in 2001-2002. The shortfall in pledged revenues led the county to issue flood control tax COs in August 2009 for the largest venue tax project, San Antonio River improvements totaling $125 million. The shift to the flood control tax levy reduced venue tax project costs by 41%, providing ample margin above the 1.25 times average annual debt service test for additional bonds and allowing the county to issue venue tax bonds for other projects. The county will consider delaying the issuance of debt for certain venue projects beyond the original 2014 timeframe, if necessary to allow additional flexibility in its financing plan. However, upon the return of pledged revenue growth, the county will consider refunding the flood control COs with venue tax bonds.

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Fitch Ratings, AustinJose Acosta, 512-215-3726Gabriela
Gutierrez, 512-215-3731orMedia Relations:Sandro
Scenga, 212-908-0278, New YorkEmail: sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com