Covington County gets credit upgrade from Standards & Poors Covington County, Alabama; General Obligation Credit Profile: Covington County GO warrants Long Term Rating A+/Stable Upgraded Rationale: Standard & Poors Ratings Services raised its rating on Covington County, Ala.s existing general obligation (GO) debt to A+ from A, based on its local GO criteria released Sept. 12, 2013, and a sustained financial position. The outlook is stable. The rating reflects our assessment of the following credit factors: We consider Covington Countys economy weak, with its projected per capita effective buying income at 81.5% of that of the U.S. and a per capita market value of $59,156. In our opinion, Covington Countys budgetary flexibility remains very strong. Audited fiscal 2012 reserves were about $1.1 million, or 16.5% of expenditures. The countys reserves have significantly improved since fiscal 2007, when its general fund balance was negative $223,000. In fiscal 2013, we believe the county will maintain at least a 15% total available general fund balance. The countys budgetary performance has been strong overall, in our view, with a general fund surplus of 3.1% and a total governmental surplus of 0.1% in fiscal 2012. Based on future-year projections, we believe the issuers finances will be balanced, or produce slight surpluses, over the next two years. In our opinion, very strong liquidity supports Covington Countys finances, with total government available cash to government fund expenditures at 25.2% and with total government available cash to debt service at more than 150%. Based on past issuance of debt, we believe that the issuer has strong access to capital markets to provide for liquidity needs if necessary. The County Commission has entered into an agreement with the Andalusia-Opp Airport Authority in which a portion of annual debt service payments could be made toward the authoritys revenue bonds. However, we do not view this as a contingent liability that would be greater than 10% of general fund revenues. We view the countys management conditions as adequate, with standard financial practices. In our opinion, Covington Countys debt and contingent liability profile is weak, with total governmental fund debt service at 15.8% of total governmental fund expenditures, and with net direct debt at 80.8% of total governmental fund revenue. Overall net debt as a percent of market value is estimated to be about 1.6%, which we consider a credit strength. The county participates in the Employees Retirement System of Alabama to provide pension benefits for employees. It has contributed 100% of the annual required contribution (ARC) in each of the past three years. The combined ARC pension costs for fiscal 2012 were about 2.5% of expenditures. We consider the Institutional Framework score for Alabama counties adequate. Outlook The stable outlook reflects our view of the countys consistent financial performance and very strong reserves. We therefore do not expect to revise the rating in the next two years. A higher rating would likely follow a significant expansion of the economic base, all else being equal, while a downgrade would be triggered by a significant deterioration of reserves. Covington County, Alabama; Gas Tax Credit Profile Covington Cnty ltd oblig st gasoline tax warrants (Four & Five Cents Gasoline Taxes) Long Term Rating A+/Stable Affirmed Rationale Standard & Poors Ratings Services has affirmed its A+ rating on Covington County, Ala.s series 2011A and 2011B state gasoline tax warrants. The outlook is stable. Credit strengths include our view of the countys: Restrictive additional bonds test (ABT) of 2x maximum annual debt service (MADS); Pledged revenue providing 2x MADS coverage; and Steady pledged revenue streams. We believe that constraining the rating somewhat are the countys: Lack of a debt service reserve fund (DSRF); and A relatively shallow economic base and below-average incomes. The portion of the state 4- and 5-cent gasoline taxes required by law to be distributed to the county secures the warrant. Alabama receives 45% of the total tax and distributes 25% of the tax to its 67 counties equally; it disburses the remainder to the 67 counties based on population. The allocation is also subject to the provision for a $550,000 minimum allocation for each county. Covington County encompasses 1,038 square miles in southwestern Alabama, approximately 90 miles from Montgomery. Agribusiness and various industrial entities drive the local economy. We consider Covingtons incomes adequate, with median household effective buying income equal to about 83% of the national average. The countys share of the tax has fluctuated slightly year to year. Pledged revenue collected in fiscal 2012 was about $807,000, which represents a 3.5% since fiscal 2008 when revenues collected were $837,000. Based on 2013 year-to-date collections, management estimates collections may see about a 1% decline from the prior year. Fiscal 2012 pledged revenue provided 2x coverage of projected MADS, which is scheduled for 2017. Management expressed that the proceeds from the pledged revenues might decrease for a number of reasons including, but not limited to, gasoline shortages, the introduction of increasingly efficient gasoline engines, and the use of alternative fuel sources. Under Alabamas allocation law, the minimum each county would receive is $550,000, which would still provide 1.32x MADS coverage. No DSRF is associated with the series 2011 warrants. Other bond provisions feature an ABT that stipulates Covington County cannot issue additional parity debt unless pledged revenue from the previous 12 months provides at least 2x MADS coverage on existing and proposed bonds. Management indicates to us it does not plan to issue such debt within the next two years. We understand officials budget surplus revenue not used for debt service for additional capital projects. State law limits the use of this revenue to road and bridge purposes so management cannot use this revenue for general operations. Outlook The stable outlook reflects Standard & Poors expectation that the relative stability of pledged revenue and lack of additional bonding plans will likely allow for the maintenance of coverage. We do not expect to raise the rating during our outlook horizon due to the normalizing pledged revenues and a somewhat limited economic base.
Posted on: Wed, 24 Sep 2014 00:05:24 +0000