OREANDA-NEWS. Fitch Ratings has affirmed Midland County, Texas' (the county) outstanding obligations as follows:

--\$18.1 million general obligation (GO) bonds, series 2009 at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are payable from an annual county-wide property tax levy limited to \$0.80 per \$100 of taxable assessed valuation (TAV).

KEY RATING DRIVERS

TAX BASE CONCENTRATION: TAV has doubled over the past six years reflecting the county's role as the commercial hub and corporate headquarters for Permian Basin energy activity. Fitch expects the potential for a near term decline in TAV based on declining oil prices. This potential is incorporated in the 'AAA' rating.

ECONOMICALLY SENSITIVE REVENUE EXPOSURE: Inherently volatile sales tax revenues represent the largest general government funding source, allowing the county to maintain a very low ad valorem tax rate. Sales tax exposure is accentuated by the dominant role of oil and gas in the county, also sensitive to price swings.

RESERVES A CREDIT MITIGANT: The county has prudently managed costs amidst rapid revenue growth, enabling it to build healthy general fund balances. The county's sizable reserves provide a buffer against revenue cyclicality and tax base concentration.

LOW DEBT PROFILE: The county is an infrequent borrower with low overall debt levels, reflecting a history of paygo capital spending. Fitch expects the county's debt burden to remain low based on the lack of debt issuance plans.

FAVORABLE ECONOMIC METRICS: The county's income and wealth measures are above average while unemployment is low.

RATING SENSITIVITIES

WEAKENED FINANCIAL PROFILE: The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong reserves which help to mitigate exposure to oil and gas price fluctuations and the inherent cyclicality of sales tax revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Midland County is located in the Permian Basin region of west Texas and includes the city of Midland.

ENERGY-BASED ECONOMY
The Permian Basin is one of the country's largest oil and gas reservoirs whose exploration and drilling has fueled strong economic activity. The county's fiscal 2015 TAV of \$21.2 billion represents a doubling of value since fiscal 2009. Fiscal 2015 market value per capita is a high \$153,000.

Real oil, gas and other mineral values comprise 24% of the fiscal 2015 tax base, with the top 10 taxpayers making up 16%. Accounting for approximately 5.5% of TAV, Pioneer Natural Resources has remained the county's top taxpayer for over 10 years. Fitch anticipates a likely decline in the county's energy-rich TAV in the next couple of years based on the current trend of lower oil prices. This expectation is incorporated in the current rating.

Top employers include the education, medical, and governmental sectors. Other area industrial and business operations in the county include semi-conductor products, telecommunications, dairy products, plastics, and household goods. The December 2014 unemployment rate of 2.1% reflects five years of solid employment base growth.

STRONG FINANCIAL PERFORMANCE
The county typically outperforms the budget and has benefited in recent years from strong sales tax growth, enabling it to fund a variety of facility and road projects. Fiscal 2013 unrestricted reserves of \$69 million represent a strong 96.2% of spending. The county reports a similar level of fiscal 2014 reserves and expects to complete fiscal 2015 favorable to its surplus budget.

Growth of sales tax revenues over the past five years have allowed the county to lower its ad valorem tax rate from \$0.208 per \$100 of TAV in fiscal 2009 to \$0.126 in fiscal 2015. Consequently, the county retains significant ad valorem tax rate capacity to the extent needed in light of the potential for a declining tax base exposure to economically sales tax revenues. The current 'AAA' rating and Stable Outlook are premised on the county's ability to maintain a strong financial profile through the downside of economic cycles, as it has historically.

LOW OVERALL DEBT
Fitch expects the county's overall debt, 2.2% of fiscal 2015 market value, to remain low given a lack of issuance plans and moderate amortization. The county anticipates funding near-term capital needs largely with cash.

The county participates in the Texas County and District Retirement System (TCDRS), an agent multiple-employer pension plan. Fitch estimates that the plan is funded at 74% based on a 7% investment rate assumption. Carrying costs, including annual debt service, pension and other post-employment benefit (OPEB) contributions, place a low 9% burden on fiscal 2013 spending.

The county's fiscal 2013 audit received a qualified opinion for the exclusion of its OPEB expense and liability from its statement of governmental activities. However, the county did include the required OPEB disclosure in the audit notes. The current OPEB obligation is modest in relation to the county's market value. Fitch will monitor the growth of the liability and will continue to assess the county's approach to financial reporting in the future.