OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to Blount County, TN's general obligation bonds (GO):

--\$24,395,000 GO refunding series 2015A and 2015B.

Proceeds will be used for a refunding and to refund the variable rate series E-3-B loan agreement between the county and the Public Building Authority of Blount County and pay the termination fee of the associated swap. The bonds are scheduled to price through negotiation around Feb. 18.

Fitch has also affirmed its 'AA-' rating to the following:

--\$59 million of Blount County GO bonds, series 2004, 2004B, 2005 and 2011.

--\$25 million in local government public improvement bonds issued by the Blount County public building authority (PBA), series B-16-A, and B-10-A.

The Rating Outlook is Stable.

SECURITY

The GO bonds are direct general obligations of the county to which it has pledged its full faith and credit and unlimited taxing power as security.

The local government public improvement bonds are a limited obligation of the PBA, secured by receipts under a loan agreement between the PBA and the county, to which the county has pledged its full faith and credit and unlimited taxing power.

KEY RATING DRIVERS

SOLID FINANCIAL POSITION; UNEVEN HISTORY: The county's financial position is supported by diverse revenues and sound fund balance levels. However, Fitch views operating and reserve volatility with some concern.

MIXED DEBT PROFILE: Key debt ratios are moderate. The county reports no major infrastructure needs or borrowing plans, but has no long-term capital plan. Carrying costs are high but stable. Variable rate exposure is reduced with this offering, but is still high.

SOUND ECONOMIC PROFILE: County unemployment rate continues to be below the state and national rates. The county's economy benefits from its proximity to Knoxville and the stable presence of prominent manufacturers.

RATING SENSITIVITIES

FINANCIAL POLICIES AND PRACTICES: Adoption of prudent financial policies, structural operating balance and demonstrated maintenance of a satisfactory balance sheet would be considered favorably.

CREDIT PROFILE

Blount County is located in east central Tennessee bordering the Great Smoky Mountains National Park. The county seat of Maryville is located approximately 15 miles south of Knoxville. The county has a 2014 population of 125,099.

FAVORABLE ECONOMIC FACTORS
Blount County employment has outpaced labor force gains over the year through November 2014, bringing unemployment to a low 5.4%. As has been the case for much of the prior decade, the county's jobless rate remains lower than that of Tennessee and the U.S. (6.4% and 5.5%, respectively). County income levels are on par with the state but modestly below the U.S. norm. Like the nation as a whole, the poverty rate has climbed but remains below the national rate.

The county is home to a diversity of manufacturing concerns. Taxbase concentration is moderate as the top 10 taxpayers are less than 10% of the taxbase. The two largest taxpayers and employers, auto parts manufacturer Denso and aluminum producer Alcoa, have made recent investments in the county. Both have maintained a long-standing presence within the county and have capital intensive operations.

The Knoxville metropolitan statistical area (MSA), with an employment base of approximately 338,000 (nearly six times that of the county), has likewise enjoyed good job growth and comparatively low unemployment at 5.3% in December. Stability is derived from the University of Tennessee and UT Medical Center. The Oak Ridge National Laboratory stimulates a growing research and development sector and could lend to higher income metrics in the future.

DIVERSE REVENUE BASE, SATISFACTORY RESERVES
Financial operations are primarily supported by property taxes (54%) as well as a diversity of other local taxes, including sales tax, franchise tax, hotel motel tax, as well as several others. Sales tax collections have shown relative resilience throughout the economic downturn. Collections fell a moderate 6.6% during the recession, but by fiscal 2011 collections exceeded the pre-recession peak. Sales tax has since grown each year since. In May 2014 voters approved, by a wide margin, a permanent increase in the local option sales tax rate from 2.5% to the statutory 2.75% limit.

After drawing on reserves in fiscal years 2010 and 2011, the unrestricted general fund balance was still a solid 16.8% of spending. Both expenditure reductions and a tax rate increase enabled the county to post surpluses in fiscal years 2012 and 2013, restoring the general fund unrestricted balance to a strong 27.8% of spending.

A shift in allocation of real property tax revenues reduced the general fund share of the tax and shifting nine cents to the schools. Consequently, fiscal 2014 general fund revenues fell to \$40.3 million from \$44.6 million, largely from the reallocation of real property taxes. Operations were balanced with a \$2.6 million use of reserves, and the unrestricted year-end balance of \$9.2 million is a still satisfactory 21.3% of spending. General fund expenditures included almost \$1 million of capital pay-as-you-go spending, thus the structural operating deficit in fiscal 2014 was \$1.6 million. The county budgeted to use \$3.1 million of general fund reserves in fiscal 2015, but is currently projecting to use \$2.9 million or less.

Officials indicate the expectation of no reserve use in fiscal 2016. This will necessitate some degree of an increase in the property tax rate or reductions in expenditures, depending in part on the results of a property reappraisal currently underway. The county is not subject to real property tax rate limits. The sales tax rate increase is expected to generate annual revenue of \$2.4 million to \$2.5 million with one half going to education and the balance for debt service, providing some possible budgetary relief. The absence of a formal reserve policy limits insight on the resolve of governmental leaders to maintain a given reserve level. Further use of reserves for operations while the economic recovery continues would pressure the credit rating.

HIGH CARRYING COSTS DESPITE BELOW-AVERAGE PAY-OUT
The county's net overall debt ratios are moderate at \$2,865 per capita and 3.1% of market value. Debt ratios include debt issued by the county on behalf of the schools and debt ratios are calculated net of variable rate hospital debt which carries a county GO but is fully supported by hospital revenues. Approximately 43% of debt is for overlapping cities. Infrastructure needs are reportedly modest, but the absence of a long-term capital planning approach creates some uncertainty. The county does not plan to issue any additional debt.

The county's somewhat below-average principal amortization (43% within 10 years) and high carrying costs for debt, pension, and other post-employment benefits (OPEB) (30% of fiscal 2014 governmental fund spending) is of some concern, as they may restrict future capital and operating initiatives. Capital funding for economic development has been achieved through proceeds of land sales within the county's research business park to further infrastructure development within the park.

ABOVE-AVERAGE VARIABLE RATE EXPOSURE
After this refunding 39.6% of the county's direct debt is variable rate; Fitch generally considers variable rate debt above 25% as high. Debt structure improves with this refunding but debt service will increase; the county commission has reportedly committed to a 5 cent rate increase to fund the higher debt service. Derivative agreements with Deutsche Bank (long-term rating of 'A+') serve to hedge the county's interest rate exposure. The market value of the swaps is negative for the county, but there is no risk to collateral posting, and the bank may only terminate following a county event of default. The county will monitor the market for economically favorable opportunities to wind down its variable rate position over time.

PENSION LIABILITIES WELL FUNDED
The county participates in an agent multiple-employer pension plan, which is very well funded at a rate of approximately 88.2% (adjusted by Fitch to assume a 7% investment rate of return). Unfunded liabilities related to pension and OPEB, which are funded on a pay-go basis, total about \$12.86 million or a very low 0.1% of market value.