OREANDA-NEWS. September 16, 2015. Fitch Ratings has affirmed the following rating for Little Salt Intercounty Drainage District, MI (the district):

--\\$175,000 Little Salt Intercounty drain bonds series 2006 at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are backed by special assessments levied on property and public entities within the district. While the district has no taxing authority, drainage commissioners of the three underlying counties (Gratiot, Isabella and Midland) are authorized to levy a special assessment sufficient to pay their share of debt service.

The bonds also constitute a general obligation of each county to levy ad valorem taxes on all taxable property in the county subject to applicable constitutional and statutory tax rate limitations in proportion to each county's special assessment. The agreement is several, whereby each county is only responsible for its share of the project.

KEY RATING DRIVERS

WEAKEST LINK ANALYSIS: The rating is based off the inherent credit characteristics of each individual county given their respective general obligation pledge to pay debt service on the bonds in the event special assessments are insufficient to do so. The rating is weighted towards the county with the perceived weakest credit quality, currently Gratiot County, reflecting the several obligations of the respective counties.

SUFFICIENT SPECIAL ASSESSMENT REVENUE: Special assessments, the primary security source, are on parity with property taxes, and have fully supported debt service to date.

HIGH RESERVES ARE KEY: Maintenance of high reserves by each county is a key offset to lack of revenue control, given statewide limitations. Each county also voluntarily maintains a delinquent tax revolving fund; combined reserves for each county range from 45% to 100% of spending in fiscal 2014.

POSITIVE LOCAL ECONOMY DEVELOPMENTS: The district benefits from a somewhat diverse local economy which continues to experience notable growth in the wind power industry. Socioeconomics vary among the three counties but are generally average or below average compared to the U.S.

MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels in each of the three counties are low-to-moderately-low. All three counties have manageable carrying costs.

RATING SENSITIVITIES:

The rating is sensitive to shifts in fundamental credit characteristics in any of the three counties, most notably the counties continued strong fiscal health and high reserves which tempers their lack of revenue control. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The district is located in central Michigan, 60 miles north of East Lansing, and includes portions of Midland, Gratiot and Isabella counties.

Obligations of each county are in proportion to the acreage of the district within each county, with Midland at 42.5%, Gratiot at 38% and Isabella at 19.5%. There is no step-up provision if one of the counties does not pay its allocated portion. Because of the several but not joint nature of the pledged security, Fitch evaluates the credit quality of all three counties, with the rating tied essentially to the county with the perceived weakest credit quality. While the credit quality of Gratiot is currently viewed as the weakest of the three counties, all three counties share similar credit characteristics.

Since Midland has the largest obligation, its treasurer is responsible for collecting the special assessments from the other two county treasurers and depositing the money in a dedicated fund. Midland sends the invoice to Isabella and Gratiot 60 days prior to the debt service payment dates, which are the beginning of June and December. The special assessments, which comprise a small amount of the respective counties overall budgets, have historically been adequate to pay debt service, and Isabella and Gratiot have consistently transferred funds to Midland in advance of the deadline. The final debt service payment date on the series 2006 bonds is June 1, 2016.

HIGH RESERVES OFFSET POTENTIAL REVENUE PRESSURES

Michigan local governments maintain little revenue control given the reliance on property taxes and statewide tax raising limitations. Long-term risks associated with the three counties' lack of control are counterbalanced by very high general fund balances. Fiscal 2014 unrestricted general fund balances compared to spending totaled a high 38%, 32% and 63% respectively for Midland, Gratiot and Isabella counties. Including the counties delinquent tax fund balances, the counties financial cushions increase substantially to 45%, 84%, and 100% for Midland, Gratiot and Isabella, respectively.

MODERATELY DIVERSE ECONOMY WITH CONTINUED GROWTH IN WIND POWER

The district benefits from a local economy driven by manufacturing, higher education, healthcare, and wind power. Major employers across the three-county region include Dow Chemical, Central Michigan University, MidMichigan Health, and Soaring Eagle Hotel and Casino. Taxpayer concentration is low in Isabella, but high in the other two counties - Midland houses Dow Chemical's headquarters, and Gratiot continues to experience large scale development of wind turbines, which have added roughly \\$272.6 million to Gratiot's tax base, a 21% increase.

Socioeconomic indicators vary across the counties, but are generally average to below average compared to the nation. Midland and Isabella's May 2015 unemployment rate approximates that of the U.S. average of 5.3%, and are below the state's average of 5.9%. Gratiot's unemployment rate of 6.4% remains elevated compared to both the state and nation.

Wealth levels for all three counties are mixed; Midland's median household income approximates the national average while Gratiot's and Isabella's median household income remains significantly below the national average.

LITTLE PRESSURE FROM LONG-TERM LIABILITIES

Overall debt levels for each of the counties are modest with the vast majority of the total debt burden attributable to overlapping school district debt. None of the counties plan to issue additional debt and have minimal capital needs for the next several years. The amortization rate is rapid for all three counties.

All three counties have manageable pension costs. Isabella County does not provide other post-employment benefits (OPEBs). Gratiot and Midland counties pay for their respective OPEB obligations on a paygo basis. Total carrying costs do not pressure the credits.