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New Issue: MOODY'S ASSIGNS Aa3 RATING TO THE CITY OF HOOVER'S (AL) $18.0 MILLION GENERAL OBLIGATION SEWER WARRANTS, SERIES 2007 Global Credit Research - 16 Oct 2007 Aa3 AFFIRMATION AFFECTS $118.0 MILLION IN PREVIOUSLY ISSUED GENERAL OBLIGATION DEBT Water/Sewer AL Moody's Rating ISSUE RATING General Obligation Limited Tax Aa3 Sale Amount $18,000,000 Expected Sale Date 10/15/07 Rating Description General Obligation Limited Tax Opinion NEW YORK, Oct 16, 2007 Moody's Investors Service has assigned a Aa3 rating to the City of Hoover's $18.0 million General Obligation Sewer Warrants, Series 2007. Concurrently, Moody's has affirmed the Aa3 rating on $118 million of previously issued parity debt. The warrants are general obligations of the city, secured by a limited tax pledge. The Aa3 rating reflects the city's strong economy, solid financial position and moderate debt burden. At the same time, Moody's has affirmed the Aa3 Issuer Rating (G.O. ULT), which reflects our assessment of Hoover's implicit unlimited general obligation credit strength. There is no debt outstanding with this security, and Alabama law does not permit the issuance of unlimited ad valorem tax-backed debt. The current issue will finance improvements to the Riverchase Wastewater Treatment Plant which will increase capacity to 3.0 MGD average daily flow with peak capacity of 4.5 MGD and the analysis of reducing inflow/infiltration in the Riverchase collection system and construction of upgrades to aging lift stations and pipe lines. Both of these projects are being undertaken as a response to a consent decree over permit violations due to excessive flow to the city's Riverchase Wastewater Treatment Plant. CITY CONTINUES TO EXPERIENCE RAPID GROWTH; MAJOR RETAIL HUB WITHIN BIRMINGHAM-HOOVER MSA The City of Hoover straddles Jefferson (Issuer Rated Aa2) and Shelby Counties (Issuer Rated Aa1), and is a major residential and retail hub within the rapidly growing Birmingham-Hoover Metropolitan Statistical Area. The Birmingham-Hoover MSA surpassed one million residents in 2002 to become the 53rd largest in the US. The City serves as a suburban base for higher income commuters to Birmingham (Issuer Rated Aa3), but also has its own diverse employment base that includes BlueCross/Blue Shield of Alabama, AmSouth Bank (A1), and Bellsouth in addition to a large retail base. Hoover's extremely low unemployment rate (2.4% in June 2007) has stayed well below state and national levels throughout recent years and has been enhanced in the past two years by the addition of 3,000 higher paying jobs in an AmSouth building which was recently completed. Regions Bank (merged with AmSouth) is using the AmSouth building as a major service center and is almost fully occupied. The city is home to a plethora of retail outlets, most notably the high-end Riverchase Galleria (accounting for approximately 23.9% of annual sales tax revenues), but continues to add new stores, including Best Buy, Kohl's, WalMart, AutoMax and Publix, along its Route 280, 150 and 31 corridors. In addition, the city has the Patton Creek Mall (opened in 2005) which has a Dick's Sporting Goods, Circuit City and variety of restaurants and theaters. Management commented that another mall (The Grove) is under construction and is expected to open within 18-20 months - major anchors will include Target, Lowe's and Kohls. Hoover, which has several highly-rated golf courses, currently hosts the area's senior PGA event, Regions Charity Classic at the Robert Trent Jones Golf Course at Ross Bridge. The city's full ---PAGE BREAK--- value has grown by an average 8.6% per year since 2001, to a substantial $8.74 billion. Wealth levels for the city are considerably higher than state averages with per capita income of $33,361 (183.4% of the state) and median family income of $79,912 (191.8% of state). Full value per capita is also strong at $127,139 (more than double the state median of $58,706). STRONG FINANCIAL POSITION; MARKED BY SOLID GENERAL FUND RESERVES Moody's expects the city's financial position will remain solid, given ongoing conservative budgeting of sales tax revenues, prudent fiscal management and ample reserves. Fiscal 2006 results show that the city's general fund received 78.2% of annual revenues from sales and use taxes, a level that has declined from 83.1% in fiscal 2002. Despite the usual volatility associated with the economically sensitive sales tax, the city's receipts have grown continually at an average annual rate of approximately 7.6% over the last five years. It is important to note that the city receives approximately 23.9% of its total revenue from the Riverchase Galleria Mall, which does present some concentration risk for this revenue source. To partially mitigate the revenue concentration risk, management maintains a revenue interruption insurance policy on the Riverchase Galleria Mall, which would provide up to $14.0 million to the city (Galleria produced $12.0 million in revenues in fiscal 2007 - unaudited). While there is still some risk associated with the revenue stream, Moody's expects the Galleria to remain an important retail location for the entire state. While property taxes only comprise 10% of annual revenues (fiscal 2006), this revenue stream will continue to grow due to the institution of annual property revaluations within the county. The city does not have to annually adjust its millage rate, allowing it to capture annual increases in its revenues. The city finished fiscal 2006 with an operating surplus of $2.03 million, primarily due to the conservative budgeting of sales tax and property taxes, as well as various savings across expenditure items. Management estimates the city ended fiscal 2007 with General Fund reserves of approximately $31.1 million (above fiscal 2006 by $100,000), which is after approximately $3.0 million in transfers to its Capital Projects Fund and $7.5 million in budgeted transfers to the school system. The fiscal 2008 budget includes $60.0 million in sales tax revenues, $10.3 million in property taxes and $5.5 million in business permit revenue. The city has budgeted for an operating surplus of $200,000 with General Fund revenues at $96.5 million and expenditures at $96.3 million (after transfers to the school system and the Capital Projects Fund). MODERATE DEBT BURDEN WITH NO FUTURE BORROWING PLANNED Moody's believes the city's debt position will remain manageable given ongoing development and the city's lack of future borrowing plans. The city's direct debt burden is 1.3% of full valuation but increases to an above-average 4.6% when taking into account the overlapping debt of local municipalities. Amortization of principal is average at 52.5% of principal repaid within ten years. The city currently has no authorized but unissued debt and plans to fund any capital projects internally over the near term (no plans for new money debt). KEY STATISTICS Population (2006): 68,707 2006 Full Valuation: $8.7 billion 2006 Full Value Per Capita: $127,139 Direct Debt Burden: 1.3% Overall Debt Burden: 4.6% Amortization of Principal (10 Years): 52.5% Fiscal 2006 General fund balance: $31.0 million (27.8% of General Fund revenues) Unemployment (June 2007): 2.4% Per Capita Income as % of State (1999): 183.4% Median Family Income as a % of State (1999): 191.8% Post-issue Parity Debt Outstanding: $131 million ---PAGE BREAK--- Christopher Coviello Analyst Public Finance Group Moody's Investors Service Jenny L. Maloney Backup Analyst Public Finance Group Moody's Investors Service Geordie Thompson Senior Credit Officer Public Finance Group Moody's Investors Service Contacts Journalists: (212) 553-0376 Research Clients: (212) 553-1653 © 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. 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