OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the City of Nashua, NH's (the city) following general obligation (GO) bonds:

\$27,030,000 GO bonds, series 2015.

The bonds are scheduled to sell competitively on April 7th. Proceeds will be used to refund certain maturities of the city's outstanding series 2006 GO bonds and to finance capital improvements of the city.

In addition, Fitch affirms the 'AAA' rating on the city's following GO bonds:

--Approximately \$71 million outstanding series 2010, 2011, 2013 and 2014 GO bonds;
--\$140.6 million outstanding, GO Pennichuck Corporation acquisition bonds (taxable); and
--\$19.0 million outstanding, GO refunding bonds, series 2012.

The Rating Outlook is Stable.

SECURITY

The bonds are unlimited tax general obligations of the city.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: The city's management team continues to successfully manage operating expenditures, raise revenues as appropriate, and maintain strong fund balances in the context of voter-approved spending limitations.

DIVERSE AND EXPANDING ECONOMIC BASE: The city's economy continues to see growth and development and is a key center in the state for business and government. Employment rates have improved and wealth indicators are above average.

LOW DEBT LEVELS: The city's overall net debt burden is low and overall carrying costs are manageable. Amortization of general fund debt is very rapid.

MANAGEABLE FUTURE RETIREE COSTS: Pension and other post-employment benefits (OPEB) costs are currently manageable but expected to rise as the state's pension system is poorly funded.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics, including the city's strong financial management practices and maintenance of strong levels of reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The city is located on the southern border of New Hampshire 34 miles northwest of Boston, and had a 2013 population of 87,137.

ABOVE-AVERAGE SOCIOECONOMIC FACTORS

The local economy serves as a regional retail hub with two very large shopping malls providing tax-free shopping for New Englanders. In addition to emerging as a regional center for medical services, the city has experienced expansion in software development, defense related research and development, and the telecommunications industries. The city is home to a diverse group of international companies including Oracle, Dell, Fidelity Investments, and BAE Systems. The city has two industrial parks and is experiencing continued new development and expansion activity.

The city's demographics are positive, with wealth levels equal to state and exceeding national averages. Unemployment levels decreased to 4.4% in December 2014 down from 5.5% a year prior as employment grew by 1.8%. The city's population total has remained relatively flat since 2000. The top 10 taxpayers represent a moderate 9.1% of fiscal 2014 taxable value.

State equalized value for fiscal 2014 of \$8.4 billion increased 5.5% from the prior fiscal year reflective of new development and ongoing property renovations. Housing prices have also trended upward with home values up 8.8% year over year through Feb. 2015 according to the Zillow Group. Management is projecting moderate growth of 0.5% to 1.2% over the next 2-3 years, which appears reasonable given recent activity.

STRONG FINANCIAL MANAGEMENT

The city continues to manage rising employee salary and benefits costs through moderate annual tax increases and cost control measures. Property taxes are the largest revenue source and represented 74% of fiscal 2014 general fund revenues. Property taxes have been raised annually in a measured fashion and the city's budgets were below the combined municipal budget spending cap of 1.7%, 2.3%, and 2.1% in fiscal 2013, 2014, and 2015 respectively. Tax collections have historically been strong and were 99.1% through fiscal end 2014. The city continued its typical practice of appropriating a portion of fund balance to help offset tax increases, budgeting \$4.3 million in fiscals 2013 and 2014.

For fiscal 2014 the city reported an operating surplus of \$3.4 million after transfers on a GAAP basis and its unrestricted general fund balance increased to \$50.7 million or a solid 21% of spending. Better revenues across many areas, particularly motor vehicles registrations, contributed to a positive revenue variance. Lower departmental costs due to conservative budgeting also contributed to the surplus results.

The city prudently continues to include in its operating budget contributions to its capital reserve funds to support equipment and fleet replacements and other city and school improvements. The fiscal 2014 budget included a combined \$3.3 million in contributions (1.4% of budget) for these purposes.

STABLE FINANCIAL EXPECTATIONS FOR FISCAL 2015

For fiscal 2015 the combined municipal budgeted appropriation growth remained under its 2.1% budget cap by \$760,945. The overall increase in the general fund budget of \$240.8 million was 2.0% compared to fiscal 2014. The bulk of the additional spending reflects increase in salary costs of \$3.5 million (2.8%) and \$1.1 million (4.2%) increase in pension costs above the fiscal 2014 budget. Healthcare costs remain flat as the city has taken measures to mitigate costs from escalating by negotiating employee increases in contributions and implementing higher co-pays and deductibles. Property taxes were raised 2.34%. Management reports that revenues to date are tracking higher than budget and projects a modest budgetary surplus at fiscal year-end. Fitch considers this projection reasonable based on management's history of prudent and conservative budgeting practices.

The city's fiscal 2016 budget is in preliminary stages but officials have indicated that the city's budget cap is 1.5% (down from 2.1% in fiscal 2015). Expenditure drivers continue to be related to salary and rising pension costs. Fitch believes that current budget flexibility exists due to historically conservative budget practices by management, traditional funding for capital and equipment expenses in the budget and a history of maintaining a comfortable balance between the actual budget increase and the budget cap.

NET DEBT RATIOS ARE LOW

The city's debt ratios (net of state school grant reimbursements and self-supporting water and sewer debt) remain low at 1.6% of fiscal 2014 state equalized value and \$1,499 per capita. Amortization is very rapid, with 80% of city and school GO debt (which excludes self-supporting debt) retired in 10 years. The city has moderate new debt plans for the future and ratios should remain low given the rapid amortization of outstanding debt.

PENSION COSTS CONTINUE TO RISE

The city's non-public works employees participate in the state's pension system, which in Fitch's opinion is weakly funded (61% as of June 30, 2014). The state eliminated its pension cost sharing arrangement in fiscal 2012, resulting in a 25% increase in the city's contribution in fiscal 2012 from the year prior. Contribution rates increased by 24% for fiscal 2014 to \$18.7 million (6.3% of the total governmental fund budget) based on the state's biannually set rate. Fiscal 2015 costs were \$19.5 million and are projected to rise by \$1.9 million in fiscal 2016 when new rates are set by the state. The city continues to make the full payment of amounts required by the state, but the expected rise in costs could pressure the budget.

Public works employees participate in a city-managed single employer system and the city continues to fully pay the annual required contribution (ARC). The city plan is an estimated 83% funded using Fitch's 7% investment rate of return, and the unfunded liability is low at \$6.7 million as of June 30, 2013.

The city contributed a modest \$1.75 million or 40% of the fiscal 2014 OPEB ARC. An unfunded OPEB liability of \$39.4 million as of July 1, 2013 reflects primarily implicit subsidy costs related to non-teacher retirees eligible to participate in the city healthcare plan at their own cost.

Carrying costs for governmental debt service (excluding Pennichuck bonds), pensions and OPEB pay-go were manageable at 13% of fiscal 2014 total governmental fund spending.