Fitch Rates New Castle County, DE GOs 'AAA'; Outlook Stable

Fitch Ratings has assigned the following ratings to New Castle County, DE's general obligation (GO) bonds:

--$40 million series 2010A at 'AAA';
--$51 million series 2010B (Federally Taxable - Recovery Zone Economic Development Bonds) at 'AAA'.

The bonds are scheduled to sell via negotiation on or after Sept. 16.

In addition, Fitch affirms the following ratings:
--$343 million GO bonds at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:
--Despite the use of reserves for operations in recent years, the county continues to maintain very high reserve levels. The maintenance of ample reserves should be sustainable given a large property tax hike to address the county's ongoing budgetary structural imbalance.
--The general fund budget has traditionally depended significantly on the economically sensitive real estate transfer tax (RTT) which has weakened substantially in recent years; the county established a new RTT reserve in fiscal (FY) 2010 which will provide an operating cushion in future years as necessary.
--The county's diverse economy has successfully absorbed downsizing in the financial services and automobile sectors and economic indicators remain sound, with wealth levels above average and unemployment rates below the national average.
--The debt burden is projected to remain moderately low due to manageable capital needs and prudent debt policies.

KEY RATING DRIVER
Maintenance of ample reserves to offset ongoing uncertainty associated with key general fund revenues.

SECURITY:
The full faith and credit of the county is pledged for the payment of principal and interest on the bonds.

CREDIT SUMMARY:
New Castle County is the northernmost of the state's three counties and includes the cities of Newark (GO bonds rated 'AA+', with a Stable Outlook by Fitch) and Wilmington (GO bonds rated 'AA-', with a Stable Outlook). The county has traditionally benefited from a broad mix of employment, including several major chemical and auto manufacturing facilities, a sizable government sector, the University of Delaware, and a large financial services industry. To date the county has successfully absorbed past reductions in the financial services and automotive sectors and Fitch will closely monitor the economic ramifications of any additional softening in these sectors. The county's estimated 2009 population of 534,634, representing about 60% of the statewide total, has increased 6.9% since the most recent census, a little more than one-half of the state's rate. Reflective of the national recession as well as local employment weakening, the county's unemployment rate nearly doubled in 2009 to 8.1% and remains on par with the state and below the national average. Income levels are greater than state and national averages.

The county prudently built up very high general fund reserves from the late 1990s through fiscal 2003, due to a combination of moderate overall spending increases, strong growth in the RTT, and state legislation that increased the county's share of the RTT. Between FYs 2004 and 2009 overall reserves were reduced more than 30% but remained strong at the close of FY 2009, providing slightly more than 50% of total general fund spending. The county addressed a continual structural imbalance, driven largely by expenditure growth and RTT decline and overall economic softening with a substantial 25% property tax increase in 2010. As a result of this additional revenue as well as cost controls, the county appears to have largely addressed its structural imbalance and expects to close FY 2010 with a small general fund surplus. The county's multi-year general fund forecast continues to project annual imbalances albeit at much lower levels than in previous forecasts. The county expects to address the manageable budgetary gaps on an annual basis with spending and revenue adjustments which may include some use of reserves. Fitch expects fund balances to remain ample, however, continuing to provide substantial financial flexibility.

The county's moderately low debt burden, above-average amortization, and modest capital needs afford significant flexibility for future issuances, so Fitch expects the debt position to remain strong. Overall debt is just $1,639 per capita and 1.1% of estimated full market value. Amortization of debt is also favorable, with 63% of principal maturing within 10 years. The capital improvement plan (CIP) for FYs 2011-2016 totals $384 million, with self-supporting sewer projects totaling $296 million.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS Global Insight and Underwriter.

Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug. 2010.
'U.S. Local Government Tax-Supported Rating Criteria', dated 21 Dec. 2009.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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