Fitch Rates Iredell County, NC's GOs 'AA+'; Outlook Stable

Fitch Ratings has assigned an 'AA+' rating to the following general obligation (GO) bonds of Iredell County, North Carolina (the county):

--$12.7 million taxable GO school bonds series 2015A;

--$29.46 million GO refunding bonds series 2015B.

Series 2015A bond proceeds will be used to fund school construction projects. The majority of the series 2015B bonds will refund various series of GO bonds for debt service savings. The bonds will be sold competitively on Feb. 17th.

In addition, Fitch affirms the 'AA+' rating on $35.1 million of outstanding GO bonds:

--GO community college bonds series 2008;

--GO public improvement bonds series 2006;

--GO school bonds series 2006.

SECURITY

The bonds are a general obligation of the county backed by its full faith, credit and unlimited taxing power.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: Strong financial management and conservative budgeting have led to the maintenance of sound reserve levels, providing the county with ample financial flexibility. Furthermore, the county has ample revenue raising capacity and spending demands are viewed as manageable.

MANUFACTURING CONCENTRATION: The county's economic base is heavily concentrated in manufacturing; however, a favorable location in close proximity to Charlotte promotes continued development and expansion. Unemployment levels continue to improve, and are now below the state and national average, and income levels are slightly above those of the state.

MANAGEABLE LONG-TERM LIABILITIES: The overall debt burden is expected remain at low to moderate levels reflecting the county's sizable capital plan but rapid amortization of existing debt. Pension and other post-employment obligations (OPEB) do not pressure the rating.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong financial management practices and maintenance of ample reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Iredell County is located in the Piedmont region of North Carolina, immediately north of Mecklenburg County. Statesville, the county seat, is about 45 miles north of Charlotte and southwest of Winston-Salem. The county's population in 2014 reached approximately 164,517, a 3% increase since 2010.

SOUND FINANCIAL CONDITION

Fiscal 2014 marks the fourth consecutive year of positive operating results reflecting management's conservative budgeting practices, a growing revenue environment and no notable expenditure pressures. The unrestricted general fund balance increased to $43.8 million or a strong 27.5% of spending (excluding refunding activity). An additional $17 million of fund balance is restricted by state law for receivables, but Fitch considers it to be an available resource that, when included, increases the city's reserves to 38.2% of spending. While the county currently does not have a formal reserve policy, management targets a minimum reserve of 18%.

The county annually makes transfers to its capital projects fund to reduce the need to issue debt. At year-end 2014, the fund had a balance of over $8.9 million. The county has plans to use the balance in the jail and courts expansion capital project fund ($4.2 million) held outside the general fund along with unassigned fund balance to fund a future expansion project.

Property taxes make up the bulk of general fund revenue (55%). The fiscal 2015 tax rate remains unchanged at a very competitive $0.485 per $100 of assessed value (AV); well below the state cap of $1.50 per $100 of AV. The fiscal 2015 general fund budget is comparable to recent budgets. Spending is increased a very modest 2% year-over-year mostly driven by education. The budget funds an increase to the general fund balance totaling $1.2 million and includes close to $900,000 for new positions and merit increases.

MANUFACTURING-BASED ECONOMY

Manufacturing is a significant economic driver in the county, which has contributed to high volatility of unemployment levels historically. Employment trends have recently been very positive - annual employment has increased five consecutive years through 2014 and 10.7% in aggregate, more than recovering the 6.2% decline in jobs experienced in 2009. The county's unemployment rate was 5.0% in November, below the state and national average of 5.3% and 5.5% respectively.

Income levels, as measured on a median household basis, are above the state average (108.6%) and slightly below the U.S. (94.9%). Positively, income continues to grow at a faster rate than state and national levels.

The county's tax base is relatively diverse, with the top 10 taxpayers accounting for 6.2% of taxable assessed value (TAV). The largest taxpayers include the headquarters of Lowe's, Duke Energy, and NGK Ceramics.

TAV has experienced minimal growth over the last several years. The estimated decline in fiscal 2015 TAV reflects 16 months of vehicle tax valuation in fiscal 2014 and incorporates a decline in personal property due to depreciation of equipment. Management forecasts growth of 1%-1.5% over the next several years which Fitch views as reasonable given several projects planned or currently underway within the county and permit activity.

LOW DEBT LEVELS

The county's overall debt levels are low at $1,933 per capita and 1.5% of market value. The county intends to issue a significant $131.5 million of debt (compared to $189 million currently outstanding) through 2018 for various school construction and renovation projects. The county is also contemplating a $17-23 million jail expansion project within the next one to three years that will be funded from the capital projects fund balance. Debt levels are not expected to increase appreciably over the next several years despite the issuance plans given the rapid amortization of existing debt (81% of principal is repaid within 10 years).

AFFORDABLE PENSION AND OPEB COSTS NOT A CREDIT PRESSURE

The county's contribution to various pension plans consumed approximately 2.4% of total governmental spending in fiscal 2014. The bulk of the annual cost is related to the county's participation in the Local Government Employees' Retirement System, which is among the strongest-funded state pension systems. The county funds OPEB on a pay-go basis which accounts for less than 1% of the budget. All costs are expected to remain stable for fiscal 2015.

Total carrying costs (including debt service, pension and OPEB costs) were moderate at 18.8% of governmental spending in fiscal 2014.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978983

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