OREANDA-NEWS. April 04, 2016. Fitch Ratings has assigned an 'AA+' rating to the following Wilmington, NC limited obligation bonds (LOBs):

--\\$48,965,000 LOBs, series 2016.

The bonds will be sold on a negotiated basis on April 13 to refinance a portion of the city's series 2008A and series 2008B certificates of participation (COPs) for debt savings.

In addition, Fitch upgrades the following ratings:

--\\$21 million in general obligation bonds (GOs) to 'AAA' from 'AA+';
--\\$150 million in certificates of participation (COPs) and LOBs to 'AA+' from 'AA'.

The Rating Outlook has been revised to Stable from Positive.

SECURITY
The city's LOBs and COPs are payable from installment payments made by the city, equal to debt service, subject to annual appropriation. The bonds are also backed by a deed of trust on certain governmental facilities.

The GO bonds are payable by the city's full faith, credit, and unlimited taxing power.

KEY RATING DRIVERS

ROBUST FINANCIAL PROFILE: The rating upgrade reflects the city's continued strong financial profile including revenue and spending flexibility and ample reserve levels.

REGIONAL ECONOMIC HUB: The city serves as the economic center for southeastern North Carolina. Business enterprises are diverse, while a large government and health care presence enhances stability. Income metrics are below average, reflecting the sizeable student population.

MODERATELY LOW LONG-TERM LIABILITIES: Debt ratios are moderately low despite the city's rapid growth. Pension and OPEB costs are low. Future capital needs are manageable.

COPS/LOBS NOTCHING: The 'AA+' rating on the COPs and LOBs is one notch lower than the city's GO rating reflecting the lesser long-term commitment to repayment, principally evidenced by the city's obligation to annually appropriate installment payments. The rating also considers that a satisfactory number of essential governmental assets are subject to a deed of trust and are surrendered should the city fail to make an installment payment.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to fundamental credit characteristics including the maintenance of satisfactory reserves.

CREDIT PROFILE
Located on the eastern coast of North Carolina, the city serves as the county seat for New Hanover County. The city is on the Cape Fear River approximately 30 miles from the Atlantic Ocean and is home to the state's largest port. The city's population growth outpaces the state's and nation's. The 2014 population of 113,657 is a 50% increase from 2000.

DIVERSE ECONOMY SERVES AS REGIONAL HUB
The city's diverse economy serves as a regional hub for the southeastern portion of the state with a mixture of high-tech manufacturing, government, telecommunications, transportation, filmmaking/entertainment, health care, higher education and tourism. The largest taxpayer is Corning's fiber optic plant (1.8% of tax base. Overall, the tax base shows little concentration, with the top 10 taxpayers accounting for a modest 4.7% of assessed value (AV). The tax base per capita is strong at approximately \\$116,000.

The University of NC at Wilmington, one of the 17 state university campuses, has enrollment of approximately 14,000. The New Hanover Regional Medical Center, a teaching hospital affiliated with UNC Chapel Hill and a regional tertiary care center, provides a strong medical presence in the city. The Cape Fear Community College serves an estimated 30,000 students annually, and recently added a new academic building and fine arts center to the downtown Wilmington campus. Several substantial new developments have recently been completed or are underway, including a downtown professional office project, residential subdivisions, mixed use projects, and new hotels. Among the larger projects is an expansion by Vertex Rail, which is undertaking a \\$60 million investment to manufacture rail tanks, with employment of 1,300.

Both employment and labor force growth are very strong, with professional and business services, financial activities and information sectors posting substantial percentage gains. The December 2015 unemployment rate is 5%, below the state 5.6% and on par with the nation. Poverty and median household income metrics lag the state and nation, partially reflecting the sizable higher education presence. Per capita income approximates the nation; however, wage and personal income growth over the past year substantially outpace the nation.

HEALTHY FINANCIAL OPERATIONS
Reserves and liquidity levels remain ample, reflecting the city's sound financial profile. In each of the past five fiscal years the city has boosted general fund reserves. At the close of fiscal 2015, the unrestricted general fund balance totaled \\$42 million, equal to a strong 47% of spending. The city's fund balance policy requires a minimum unassigned fund balance equal to a prudent 15% to 20% of the current operating budget. In evaluating the city's overall financial flexibility, Fitch also gives credit to the statutory stabilization reserve which is generally composed of accounts receivable not offset by deferred revenue. In fiscal 2015 this reserve totaled \\$12 million or an additional 13% of spending.

Property taxes account for approximately 55% of total revenue sources. The rate was held steady in 2014 and a modest 2.2% tax rate increase was implemented in fiscal 2015. Sales taxes are the next largest general fund revenue source, accounting for 23% of fiscal 2015 revenues.

STRONG RESULTS PROJECTED FOR FISCAL 2016
The city's adopted fiscal 2016 general fund budget of \\$94.7 million represents a 3.9% increase over the fiscal 2015 adopted amount, and includes a 2.2% increase in the property tax rate. A portion of the rate increase is to support transportation construction costs as well as offset the statewide elimination of the privilege (business) license fees which resulted in the fiscal 2016 loss of \\$2.3 million in annual revenue.

With regional economic recovery, property and sales tax collections are coming in over budget, which together with budgetary expenditure savings is leading to a projected \\$1.9 million net operating deficit compared to a \\$3.2 million budgeted use of fund balance. However if the year-to-date sales tax revenue growth rate continues throughout the balance of the fiscal year, an additional \\$1.3 million of revenue will be collected reducing the use of reserves to approximately \\$600,000.

The city's detailed financial policies limit use of one-time revenues, such as reserves. Typically, reserve use has been for capital purchases and other one-time expenditures. The fiscal 2016 tax rate of \\$0.485 per \\$100 AV is very low relative to the statutory cap of \\$1.50 per \\$100 AV, and well within the state norms. The tax rate includes \\$.07 per \\$100 dedicated to debt service.

MANAGEABLE LONG-TERM OBLIGATIONS
Overall debt ratios are moderate at 2.5% of taxable AV and \\$2,870 per capita. The amortization rate is average. In fiscal 2015, debt service was a sizable 17% of governmental fund expenditures. Adjusting for reimbursements for GO and LOB water obligations, debt service is 15% of governmental fund expenditures. In 2008, the city transferred water and sewer operations to the Cape Fear Public Utility Authority, and the authority reimburses the city for debt service on water related GOs and LOBs. Future borrowing needs are manageable. In fiscal 2013 the city implemented a strategy dedicating \\$0.05 of the property tax rate for capital needs, with 80% for debt service and 20% for pay-as-you-go projects. In November 2014, voters approved \\$44 million in GO bonds for street, sidewalk and transportation improvements, with issuance occurring over nine years. The city also expects to continue issuance of installment financing bonds for new projects. Fitch expects direct debt metrics to remain moderate given amortization.

The city participates in the statewide Local Governmental Employees' Retirement System (LGERS). The pension plan as a whole is a very well-funded at an estimated 99.9% as adjusted by Fitch to a 7% investment return. For fiscal 2015, the city's required pension contribution was a low 3.4% of governmental spending. Total carrying costs including pension, debt service and OPEB are sizable at 21.5% of general government spending. The OPEB unfunded liability was low at \\$45.6 million (0.4% of the market value of real property) at Dec. 31, 2013.