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New Issue: MOODY'S UPGRADES RATING ON THE CITY OF HOOVER'S (AL) $56.4 MILLION GENERAL OBLIGATION WARRANTS, SERIES 2010 TO Aa1 FROM Aa2 Global Credit Research - 14 Oct 2010 Aa1 AFFECTS $119.4 MILLION IN PREVIOUSLY ISSUED GENERAL OBLIGATION DEBT Municipality AL Moody's Rating ISSUE RATING General Obligation Warrants, Series 2010 Aa1 Sale Amount $56,400,000 Expected Sale Date 11/01/10 Rating Description General Obligation Limited Tax Opinion NEW YORK, Oct 14, 2010 Moody's Investors Service has assigned a Aa1 rating to the City of Hoover's $56.4 million General Obligation Warrants, Series 2010. RATINGS RATIONALE Concurrently, Moody's has upgraded the rating on $119.4 million of previously issued parity debt to Aa1 from Aa2. The warrants are general obligations of the city, secured by a limited tax pledge. At the same time, Moody's has upgraded the city's Issuer Rating (GOULT) to Aa1 from Aa2, which reflects our assessment of Hoover's implicit unlimited general obligation credit strength. The Aa1 rating on the city's GOLT and Issuer Rating reflects the city's strong economy, solid financial position and moderate debt burden. The upgrade reflects the diversification of the city's major sales tax payers, the continued development of retail outlets, and the city's commitment to robust pay-go capital spending. 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 be used to currently refund the Series 2003 Warrants for an estimated net present value savings of approximately $3.2 million, or 5.6% of refunded bonds, with no extension of maturity. CITY CONTINUES TO EXPERIENCE RAPID GROWTH; MAJOR RETAIL HUB WITHIN BIRMINGHAM-HOOVER MSA The city straddles Jefferson (GO Rated Caa1/negative) and Shelby Counties (Issuer rated Aaa), 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 earlier this decade, with the city experiencing growth of greater than 50% in the 2000's. The City serves as a suburban base for higher income commuters to Birmingham (GO rated Aa2), but also has its own diverse employment base that includes BlueCross/Blue Shield of Alabama, Regions Bank (Senior Unsecured Debt Rated Long-term rated Baa1/watchlist for possible downgrade), and TIAA- CREFF (Long-term rated Aaa) in addition to a large retail base. Unemployment has historically been below that of the state and nation, and stands at 6.1% (August 2010) compared to national and state levels of 9.3% and 9.5%, respectively. The city is home to a plethora of retail outlets, most notably the high-end Riverchase Galleria, and has added new stores, albeit at a far slower pace than earlier in the decade. Officials note that while vacancy rates have increased during the recent economic downturn, no major retailer has closed and a new Kohl's is expected to open before the end of the year. Hoover is also home to several highly-rated golf courses which have hosted PGA Tournament events. The city's ad valorem tax base has grown by an average 8.4% per year since 2005, to a substantial $11.1 billion, and full value per capita was a high $136,194 in 2010. The city has not been immune to the national downturn in housing and commercial property value, causing the tax base to contract by 1.7% in 2010. ---PAGE BREAK--- Wealth levels are well above state and national averages, and median home values are more than twice that of the state. The growth in the city will continue as the city attracts people from around the state to the high quality schools and solid employment base. STRONG FINANCIAL POSITION; MARKED BY SOLID GENERAL FUND RESERVES Moody's expects the city's financial position will remain solid, given ongoing conservative budgeting, recovering sales tax revenue, prudent fiscal management, and ample reserves. Fiscal 2009 results show that the city's general fund received 60.7% of annual revenues from sales and use taxes, a level that has remained stable through the decade. Despite the usual volatility associated with the economically sensitive sales tax, the city's receipts have declined at an average annual rate of approximately 3.4% over the last three years. Favorably, the city indicates that sales and use tax stabilized in fiscal 2010, and is projected to have increased by 1.7% from the prior year (approximately $800,000). It is important to note that the city receives approximately 21.4% 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 $13 million to the city (Galleria produced $10.7 million in revenues in 2009, down from $13.2 million in 2002). 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 11% of annual revenues (fiscal 2009), 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 2009 with an operating surplus of $2.8 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 2010 with General Fund reserves of approximately $31.4 million (above fiscal 2009 by $100,000), which is after approximately $2.7 million in transfers to its Capital Projects Fund and $2 million in budgeted transfers to the school system to support debt service. The fiscal 2011 budget includes $52.3 million in sales tax revenues (a $1.8 million decline from the fiscal 2010 projected levels), $9.6 million in property taxes and $5.2 million in business permit revenue. The city has budgeted for balanced operations with General Fund revenues or $88.7 million (after transfers to the school system and the Capital Projects Fund). The city has an informal policy to maintain General Fund balance equal to at least 30%, and to increase the General Fund balance by at least $100,000 each year while utilizing excess operating surplus for capital project s. 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 potential future borrowing plans of approximately $43 million related to a major redevelopment project. The city's direct debt burden is 1.1% of full valuation but increases to an above-average 4.1% when taking into account the overlapping debt of local municipalities. Amortization of principal is average at 79.5% of principal repaid within ten years. The city currently does not have any variable rate debt, and is not party to any swap agreements. Management estimates that less than half of its residents are customers of the Jefferson County Sewer System, which has seen rates more than double in the past year. KEY STATISTICS Population (2009): 81,616 2010 Full Valuation: $11.1 billion 2010 Full Value Per Capita: $136,194 Direct Debt Burden: 1.1% Overall Debt Burden: 4.1% Amortization of Principal (10 Years): 79.5% Fiscal 2009 General fund balance: $31.3 million (29.3% of General Fund revenues) Unemployment (August 2010): 6.1% Per Capita Income as % of State (1999): 183.4% ---PAGE BREAK--- Median Family Income as a % of State (1999): 191.8% Post-issue Parity Debt Outstanding: $119.4 million The principal methodology used in rating Hoover (City of) AL was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website. 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