Fitch Affirms Royse City, Texas' GOs at 'BBB+'; Outlook Stable

2009-11-25 17:27:02 -

In the course of routine surveillance, Fitch Ratings affirms its 'BBB+' rating for Royse City, Texas' (the city) approximately $19.4 million in outstanding limited tax general obligation (GOs) bonds and certificates of obligation (COs). While Fitch considered the following series of GO bonds and COs in its previous analysis and commentaries, the rating history was not reflected on Fitch's web

site. Therefore, Fitch explicitly assigns a 'BBB+' rating to the ensuing parity GO bonds and COs as follows.

--GO bonds, series 1976; and

--Combination tax and revenue COs, series 2006.

The full rating history is now available on Fitch's web site at ' www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. '.

The Rating Outlook is Stable.

The 'BBB+' rating reflects the city's growing population and tax base and above average debt ratios, with no additional borrowing planned for the next five years. The ongoing recession has negatively impacted the city's financial position, with a general fund deficit recorded in fiscal 2008 and projected for the close of fiscal 2009. However, the new administration has implemented a multi-year recovery plan which included a significant reduction in the city's workforce, an increase in the property tax rate, and improved financial monitoring and controls.
Adherence to the recovery plan and restoration and maintenance of appropriate reserve levels remains the key credit consideration.

Located predominantly in Rockwall County, but also encompassed in portions of Collin and Hunt counties, the city is conveniently located about 35 miles northeast of Dallas off Interstate 30. With an estimated 2009 population of 11,000 (up 250% since 2000), the city is a fast-growing bedroom community in the Dallas-Fort Worth metroplex and benefits from its close proximity to three area lakes. Taxable assessed valuation growth has been strong, averaging just over 20% annually from 2004-2009. Growth slowed considerably in 2009 to 9.5%, however, and a more modest increase of just under 3% was posted for fiscal 2010.
Independent housing information indicates relatively low mortgage delinquency and foreclosure rates and officials indicate no drop in current property tax collection rates. County wealth levels are above average while unemployment rates remain below metropolitan, state, and national averages.

Historically, the city's financial margins have been thin, but were expected to improve over time. However, the downturn in the housing market and national economy as well as optimistic revenue estimates have had a severe impact on growth related revenue collections such as property taxes and building fees. Despite a modest increase in sales taxes and sizable transfers from the water and sewer fund, the city's general fund recorded a $1.1 million fund deficit in fiscal 2008. In response, the city developed a multi-year recovery plan in late fiscal 2008 which included the elimination of 21 positions (or 29% of the workforce); increased the operations and maintenance property tax rate by nearly $0.02; and revised downward other revenue estimates to more realistic levels.

The fiscal 2009 year-end general fund position is projected to remain in a deficit position, similar in size to fiscal 2008 results. In addition, with the depletion of reserves, the city's liquidity position declined substantially, and in fiscal 2009, the city was required to issue $1.2 million in cashflow notes to meet operating needs. For fiscal 2010, the city has budgeted a $350,000 contribution toward the elimination of the general fund deficit, with similar contributions anticipated for the coming fiscal years. Liquidity position has also improved for the current fiscal year, with the issuance of a more moderate $350,000 in cashflow notes; no additional short-term borrowing is planned for fiscal 2011. While the rebuilding of reserves will take several years, Fitch expects that the city's financial position will improve annually.
Failure to adhere to the recovery plan will likely result in downward pressure on the rating.

Given rapid population and tax base growth, debt ratios have improved over time. Direct debt ratios are moderate while the overall debt ratio is high due to significant issuance by the local school district. Payout is slightly below average. The city is in the process of developing a new capital plan, although given current financial and economic conditions, no additional borrowing is planned for the next five years.

Additional information is available at ' www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. '.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS : cts.businesswire.com/ct/CT?id=smartlink&url=HTTP%3A%2F%2FFIT .. .

IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2FWWW .. '.

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, AustinMark Campa, +1-512-215-3727Rebecca
Moses, +1-512-215-3739Media Relations, New YorkCindy
Stoller, +1-212-908-0526 cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com