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New Issue: MOODY'S ASSIGNS Aa3 RATING TO CITY OF HOOVER'S (AL) $31.4 MILLION G.O. WARRANTS Global Credit Research - 02 Dec 2004 Aa3 ISSUER RATING ASSIGNED Municipality AL Moody's Rating ISSUE RATING General Obligation Warrants, Series 2004 Aa3 Sale Amount $31,140,000 Expected Sale Date 12/07/04 Rating Description General Obligation Limited tax Opinion NEW YORK, Dec 2, 2004 Moody's Investors Service has assigned a Aa3 rating to the City of Hoover's (AL) $31.14 million G.O. Warrants, Series 2004. The warrants are secured by a general obligation limited property tax pledge of the city. Concurrently, Moody's has affirmed the Aa3 rating on $131.4 million of parity debt, including the current refunding issue. The Series 2004 Warrants will advance refund the city's Series 2000 Warrants and a privately- placed note from 1995 for net present value savings of approximately 5.5% of refunded principal with maturities shortened by seven years. The Aa3 rating reflects the city's strong economy, solid financial position and moderate debt burden. The Series 2004 Warrants are expected to be insured by an insurer rated in Moody's highest rating category, and, pursuant to Moody's review of the relevant documentation, will carry the insurer's Aaa financial strength rating. Concurrently, Moody's has assigned a Aa3 Issuer Rating (G.O. ULT) that reflects our assessment of Hoover's implicit unlimited general obligation credit strength. Importantly, there is no debt outstanding with this security, and Alabama law does not permit the issuance of unlimited ad valorem tax-backed debt. STRONG ECONOMY 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 such area 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 (A2), and Accenture in addition to a large retail base. Hoover's extremely low unemployment rate of 1.9% in September 2004 has stayed well below state and national levels throughout the recent years' economic slowdown, and has been enhanced in the past two years by the addition of 3,000 higher paying jobs in an AmSouth building nearing completion. The city is home to a plethora of retail outlets, most notably the high-end Riverchase Galleria, but continues to add new stores, including Best Buy, Kohl's, WalMart, AutoMax and Publix, along its Route 280, 150 and 31 corridors. Hoover, home to a number of highly-rated golf courses, currently hosts one PGA Tournament each year and will seek another for the new course being constructed in its Shannon Valley development. The city's ad valorem tax base has grown by an average 7.5% per year since 1998, to a substantial $6.3 billion, and full value per capita was a high $100,419 in 2003. Median family income of $79,912 is nearly double the State of Alabama (Aa3) level, and 35.5% of City households earned more than $100,000 in 2000. AMPLE RESERVES MITIGATE CITY'S RELIANCE ON VOLATILE SALES TAX REVENUES Moody's believes that Hoover's financial position is solid, as ample reserves provide an operating cushion that ---PAGE BREAK--- mitigates the city's heavy reliance on sales tax revenues. Unaudited fiscal 2004 results indicate that the city's operating funds received 64.2% of revenues from a 3.5% sales and use tax, a level that has remained constant over the past five years. Despite the usual volatility associated with economic sensitive sales taxes, Hoover's receipts from this source has grown by a healthy annual average of 6.0% over the past decade with now year-over-year declines. Approximately 25% of these revenues come from a single location, the Riverchase Galleria, which does present some concentration risk for this revenue source. However, the mall has recently had a large retailer move back into a vacant space, and Moody's expects the Galleria to remain an important retail location for the entire state. While property taxes comprised only 9.6% of fiscal 2004 operating revenues, this revenue stream should be enhanced by a change to annual property revaluations by the county. The city does not have to adjust its millage rate which will allow it to capture annual increases in its revenues. General Fund balance for fiscal 2004 (unaudited) ended at $28.4 million, or 35.4% of fund revenues, up from the fiscal 2003 level of $27.6 million. Officials indicate that, in addition to increasing General Fund reserves, higher than budgeted revenues allowed them to increase the transfer to the Capital Projects Fund in fiscal 2004 by an additional $600,000 to $3.6 million. The city plans to fund capital projects for the next five years either through cash-flow or accumulated reserves within the Capital Projects Fund. MODERATE DEBT BURDEN WITH NO FUTURE BORROWING PLANNED Moody's views the city's debt position as manageable, as the city's lack of borrowing plans should reduce its moderate debt burden in the near-term. Following the current refunding issue, the city's overall debt burden will be somewhat high at 4.9% of full valuation, with a more moderate direct debt burden of 2.1%. Jefferson County is planning to issue $1 billion in sales-tax backed bonds in 2004 that would potentially increase the city's overall debt burden to 6.3%. However, a portion of the proceeds would be given to the Hoover Board of Education (G.O. Limited Tax rated A1) to defease a portion of its outstanding debt, thereby reducing the impact on the city's overall debt burden. Officials indicate that all capital projects planned for the next five years will be paid from cash-flow or reserves accumulated in the Capital Projects Fund. KEY STATISTICS: Population: 64,265 2003 Full Valuation: $6.04 billion 2003 Full Value Per Capita: $100,419 Per Capita Income as % of State (1999): 183.4% Overall Debt Burden: 4.9% Amortization of Principal (10 Years): 44.4% Fiscal 2004 General Fund balance (unaudited): $28.4 million (35.4% of G.F. revenues) Fiscal 2003 General fund balance: $27.6 million (24.9% of G.F. revenues) Unemployment (September 2004): 1.9% Post-issue Parity Debt Outstanding: $131.4 million Brian Kennedy Analyst Public Finance Group Moody's Investors Service Bill Leech Backup Analyst Public Finance Group Moody's Investors Service ---PAGE BREAK--- 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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