OREANDA-NEWS. Fitch Ratings affirms the 'AA+' rating on the following South Bend Redevelopment Authority, Indiana's (the authority) bonds:

--\$3.6 million taxable lease rental revenue refunding bonds, series 2011A (College Football Hall of Fame Project);

--\$1.4 million lease rental revenue refunding bonds, series 2011B (Century Center Project);

--\$1.9 million lease rental revenue refunding bonds, series 2009 (Morris Performing Arts Center).

In addition, Fitch affirms the 'AA+' rating on the city of South Bend's (the city) implied unlimited tax general obligation (ULTGO) bonds.

The Rating Outlook is Stable.

SECURITY

The lease revenue bonds are payable from semiannual lease payments payable to the trustee two days prior to debt service payment on the bonds.

The lease payments are secured by an ad valorem tax levied by the South Bend Redevelopment Commission (the Commission), on all taxable property in the City of South Bend Redevelopment District, an area coterminous with the city. Lease payments are not subject to annual appropriation.

If the leased property is damaged or destroyed, the Commission shall abate the lease payments for the period of time the leased property is unfit for use or occupancy. To mitigate the abatement risk, the Commission is required to carry physical loss insurance equal to the greater of 100% of the replacement cost of the property or amount to redeem the outstanding bonds and rental interruption insurance equal to two years. The leased properties consist of the College Football Hall of Fame, the Morris Performing Arts Center, and the Century Center Complex.

KEY RATING DRIVERS

SOLID RESERVES: The city's sound financial position is characterized by strong reserve levels and proactive management that has successfully navigated the reduction in property taxes caused by state property tax reform. Expenditure cuts combined with the implementation of local income taxes have put operations on firm ground.

ECONOMY BENEFITS FROM UNIVERSITY PRESENCE: The close proximity of the University of Notre Dame provides economic stability, but the city continues to face ongoing challenges such above-average unemployment and poverty levels. Although improving, these levels are still above state and national averages.

MANAGEABLE DEBT PROFILE: Above-average amortization, moderate debt ratios, and limited future debt plans are offset by weakly-funded pension plans.

LEASE AND ULTGO ON PAR: Fitch believes that insurance provisions sufficiently mitigate abatement risk to maintain the same rating on the lease revenue bonds and the implied ULTGO
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RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: The city's continued high rating is contingent upon the maintenance of strong reserve levels. Fitch expects this trend to continue given management's history of prudent financial and budgeting practices.

CREDIT PROFILE

South Bend is the fourth largest city in Indiana, located in the north central part of the state, approximately five miles south of the Michigan border and 90 miles east of Chicago. The University of Notre Dame is adjacent to the city. After decreasing 6.1% from 2000 to 2010, population has stabilized, totaling 100,886 in 2013.

SOLID RESERVE LEVELS MAINTAINED

Since the implementation of the circuit breaker legislation in 2007, which limits property taxes to a percentage of gross assessed value, city management has proactively reduced expenditures and increased local option income taxes to partially offset the decline in property tax revenues. This increased reliance on economically sensitive income taxes subjects the city to some revenue volatility.

For 2013 (year-end Dec. 31), the city recorded an operating deficit after transfers of \$1.1 million (1.6% of spending). Reserve levels remained solid, with an unrestricted general fund balance equivalent to 36.9% of spending. Additionally, the city maintains a rainy day fund, outside the general fund. The 2013 balance was \$8.6 million, equivalent to a healthy 11.7% of general fund spending. The fund would only be accessed if no other options are available, and is unlikely to ever be spent.

For 2014, the city's estimates indicate a small cash-basis general fund operating surplus and a small increase in fund balance. The 2015 budget is balanced with no use of fund balance.

Positively, management has a cash reserve policy in place for certain funds to serve as fiscal protection against the risk of revenue shortfalls, emergencies, and unstable property tax collections. As of Jan. 31, 2015, the general fund cash reserve totaled 46% of expenditures compared to a policy of 25%. Fitch expects the city to continue to maintain budgetary balance and strong reserves.

ECONOMY BOLSTERED BY UNIVERSITY PRESENCE

Manufacturing is still a major component of the area economy but the city also has strong service-based sectors with the University of Notre Dame, which is adjacent to the city, providing stability as the largest employer (approximately 5,590 employees). Other major employers include Beacon Health System (3,450), South Bend Community School Corporation (2,880) and AM General (2,658).

Increased economic activity due to the recovering economy was evidenced in 2014 as the city reported lower unemployment rates and growth in employment and labor force numbers. The December 2014 unemployment rate of 7.4% was down from 8.6% a year earlier, but still above the state (5.8%) and nation (5.4%). Employment and labor force growth over the same time period were 2.7% and 1.4%, respectively, below very strong state increases but higher than U.S. growth rates.

City income levels are below average, with per capita income 78% of the state and 68% of the national average. Poverty levels are almost double those of the state and nation. Low income levels are likely reflective, in part, of a large student population.

Taxable assessed valuation, about \$2.2 billion, improved slightly for 2015, after declining almost 10% from 2010 to 2014. The tax base is moderately concentrated with the top 10 taxpayers including a mix of utilities, manufacturing and retail, comprising 14.1% of taxable value. Current property tax collections are satisfactory, averaging 94.4% over the last three years; total collections are stronger averaging 99%.

MANAGEABLE DEBT PROFILE

Overall debt ratios are moderate at \$2,206 per capita and 4.6% full value and should remain stable as the city has modest debt issuance plans and amortization is above-average.

As is typical in Indiana, due to stringent restrictions on the issuance of general obligation debt, the city relies upon the use of lease rental revenue bonds payable from ad valorem taxes. The obligation to pay is not subject to appropriation, but is subject to abatement in case of damage or destruction of the leased premises. The requirement to maintain property and casualty insurance, along with rental interruption insurance sufficient to cover two years of abated rental payments, mitigates the abatement risk.

The College Football Hall of Fame, for which the series 2011A bonds were issued, vacated its building in South Bend at the end of 2012 and moved to Atlanta. The city is currently in conversations with private entities interested in redeveloping the space for commercial use. It is also being vetted for a potential civic use. Fitch believes there is minimal risk of lease payments not continuing as there is no appropriation risk; a special property tax levy is used to pay debt service without tapping into general fund revenue or local option income tax revenue. The last lease rental payment is Feb. 1, 2018, at which time the city owns the facility outright.

The majority of city employees participate in the Public Employees Retirement Fund (PERF), an agent multiple-employer defined benefit plan, administered by the state. The city continues to fund its statutory annual required contribution as mandated by the state. Based on a 7% rate of return, Fitch-estimated city's local portion has a weak funded ratio of 55%.

In addition to PERF, the city has two single employer defined benefit plans for police and fire fighters hired prior to 1977. Indiana statute requires funding only the next year's budgeted expenditure; these plans have been funded on a pay-as-you-go-basis and therefore have very low funding ratio of approximately 3%. As a result of property tax reform, in 2009 the state assumed the funding of the two plans. The combined UAAL for these plans is \$141.2 million. Fitch does not expect the city to be responsible for this liability but recognizes as a risk the possibility that the state could change the law again. In that case, this sizable liability - 2.9% of full value, could revert to the city.

The city addresses its other post-employment benefits (OPEB) costs on a pay-as-you-go basis and has no plans to pre-fund the liability. The unfunded liability was \$21.5 million, or a modest 0.4% of taxable market value as of Jan. 1, 2013. Overall debt service, pension, and OPEB costs are manageable at 17.8% of total 2013 governmental fund expenditures.