2008-04-18 23:19:27 -

- Fitch Ratings assigns an 'AA' rating to Lubbock, TX's $2.1 million general obligation (GO) bonds and $90.3 million tax and waterworks system surplus revenue certificates of obligation (COs), series 2008. The obligations may be sold as early as April 24 via negotiation. Fitch also affirms its 'AA' rating on the city's outstanding debt comprised of $185.8 million in GO

bonds and $391.2 million in COs. The Rating Outlook is Stable.

The GOs are direct obligations of the city and are payable from a direct annual ad valorem tax levied, limited to $2.50 per $100 assessed valuation, against all taxable property within the city. The COs are payable from the same source as the GOs and are additionally payable from a pledge of surplus net revenues of the city's waterworks system. The GO proceeds will be used for street improvements; CO proceeds will finance a broad scope of public improvement projects including: cultural and arts, parks, water and wastewater, drainage, fire, airport, street, electrical, tax increment financing zone projects and pay issuance costs.

The 'AA' rating reflects the city's restoration of solid financial reserves, the prevailing health and stability of the local economy despite a recent slowing, and the moderate, although growing, direct tax-supported debt burden on city residents. Also considered in the rating is the city's relationship with its electric utility, Lubbock Power and Light (LP&L, revenue bonds rated 'BBB+' with a Stable Rating Outlook by Fitch), the financial posture of which has improved, reducing its potential impact on the city's general fund operations. Maintenance of solid financial reserves given the competition that exists in the local power market is essential to the city's credit quality.

A significant transfer of funds to LP&L in fiscal 2003 depleted general fund cash and reserves, but the city, through a combination of administrative action and strong revenue performance, largely restored general fund reserve levels by fiscal 2005. In addition, LP&L had operating surpluses and improved cash balances in fiscal years 2004-2006. The general fund recovery has occurred more rapidly than anticipated, and the need for additional general fund financial support for LP&L appears less likely; no transfers to LP&L were required in fiscal years 2004-2007, and for fiscal 2008, the city expects to transfer to the general fund reserves between $4 million-$5 million from LP&L. For fiscal 2006, general fund operations contributed more than $2.5 million to the fund balance, primarily due to strong revenue collections. As a result, the city's unreserved, undesignated fund balance grew to almost $20.0 million, allowing the city to meet its general fund goal of 20% of operating revenues. However, due to a modest operating deficit in fiscal 2007 the city missed this target with an unreserved, undesignated fund balance of nearly $19 million, or 18.5% of operating revenues. The fiscal 2008 budget is balanced and interim results reflect balanced operations despite some revenue variances. In addition, renewed transfers from LP&L will be added to general fund reserves.

Two of Lubbock's major economic indicators, its unemployment rate and taxable assessed valuation (TAV), are performing well. The latest projected unemployment rate was a low 3.3% for February 2008, well below the Texas (4.3%) and national (4.8%) averages for the same month. TAV gains have been good at almost 9% for the current tax year and an annual average of over 8% over the past five fiscal years. The city's TAV for fiscal 2008 is approaching $11 billion, and prospects for continued growth remain favorable. More than 60 residential and commercial developments are under way in the city, a portion of which is expected to add as much as $3 billion in new TAV over the next 10-15 years. However, not insulated from the economic slowdown, the city's residential and non-residential building permit issues have declined in the current fiscal year, but the city reports that the permit valuations are slightly ahead of the level for the same period last fiscal year.

The city's direct debt burden is modest on a per capita basis at $921 per capita and moderate as a percentage of TAV at 1.8%. When debt from overlapping municipal entities is included, the debt burden rises to a still moderate $2,230 per capita and 4.4% of TAV. Amortization will slow with the current issuance to 45% of principal retirement in 10 years, compared with above average amortization of 56% at the time of the last offering. In the fiscal 2007 capital improvement plan (CIP), anticipated project costs increased to $485 million through fiscal 2012 from $323 million in the fiscal 2006 CIP. While the increase is sizable, it is overwhelmingly attributable to development of additional water supplies and rehabilitation of the city's wastewater facilities, both of which were anticipated. Debt issued to fund these projects, including the current offering, will be issued as tax-supported debt, but, per the city's practice, the debt for the respective utilities will be self-supporting.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Gabriela Quiroga, +1-512-215-3731, Austin
Jose Acosta, +1-512-215-3726, Austin
Media Relations:
Cindy Stoller, +1-212-908-0526, New York