MRO Magazine

Fitch Affirms Chandler, AZ Spectrum ID Bonds at ‘AA-‘; Outlook Stable


January 13, 2016
By Business Wire News

AUSTIN, Texas

Fitch Ratings has affirmed the ‘AA-‘ rating on the $3.96 million outstanding improvement bonds, series 2008, of the Chandler, Arizona Spectrum Improvement District (ID).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by special assessments imposed upon real property within the district assessed for expenses associated with various infrastructure improvements. The bonds have a first lien on assessed parcels, subject only to the lien for general property taxes. In the case of delinquency and no other purchaser at auction, Chandler (the city) must purchase the property and pay any delinquent assessments.

KEY RATING DRIVERS

RATING BASED ON CITY PLEDGE: In cases of delinquent assessment payments, the city must purchase the property at auction and pay delinquent assessments if no other purchaser emerges. In addition, the city may loan money to service the bonds.

CITY FINANCIAL STRENGTH: Fitch rates the city’s general obligation (GOs) bonds ‘AAA’ reflecting its very strong financial position and financial stewardship. The amount of district debt outstanding is relatively small, and the assumption of assessment payment responsibility would not present a challenge to the city given its resources. The three-notch distinction from the city’s GO rating reflects the non-essential nature of the district.

NO DELINQUENCIES: The 90-acre tract is currently about half developed. Property owners are responsible for assessment payments and the city reports no assessment payment delinquencies.

STABLE DISTRICT DEVELOPMENT: Vacancy rates in the business park are reportedly low. The city reports significant market value gains and new commercial development underway.

HEALTHY ECONOMY WITH GOOD GROWTH PROSPECTS: A highly educated and skilled workforce contributes to the city’s low unemployment and attractive growth prospects; income and wealth trends are well above average.

RATING SENSITIVITIES

ECONOMIC AND FINANCIAL PROFILE: The rating is based on continued strength of the city’s local economy and financial management practices.

CREDIT PROFILE

Chandler occupies 70 square miles in southeastern Maricopa County with a 2013 population of approximately 245,628.

CITY PLEDGE SUPPORTS RATING

The city’s ‘AAA’ GO bond rating reflects in part sizable general fund reserves that would be sufficient to either purchase delinquent property at auction or, if the city chooses, loan money to the assessment fund in an amount sufficient to make debt payments in the event of a delinquent assessment payment. The total amount of district debt outstanding is a manageable $3.96 million. The foreclosure process for delinquent properties is rapid, normally taking between 45 and 60 days. In the event no purchaser emerges at the foreclosure auction, the city must purchase the property and satisfy all assessment delinquencies.

SOUND CITY FINANCES

Chandler’s strong financial performance reflects structurally balanced operations and solid post-recessionary revenue growth. The city budgets conservatively and uses non-recurring sales tax revenues for one-time uses.

The city’s fiscal 2014 unrestricted general fund balance of $177.6 million represents a very high 93.2% of spending. Historically strong financial flexibility has afforded Chandler the ability to use excess reserves to fund capital and other nonrecurring expenditures, including a new city hall, downtown redevelopment, and street improvements. An unaudited fiscal 2015 net surplus of $7 million (3.5% of spending) brings unrestricted reserves to $184 million (90.3% of spending).

DISTRICT DEVELOPMENT UNDERWAY

Spectrum Chandler is a mixed-use development planned with a blend of office, retail, hotel, and business support uses located at the intersection of Price Road (Loop 101) and the Santan Freeway (Loop 202), in the southeast part of the Phoenix metropolitan area. The project consists of 90 acres comprising 10 parcels.

Two hotels and five contiguous office buildings reside in the district’s Park Place business park. Anchor tenants include Healthways, Infusionsoft, and Education Management Corporation. All existing buildings are currently leased.

Recent commercial development has contributed to fiscal 2016 market value of $85 million, up from $56.8 million in fiscal 2014. Additional commercial development is underway and planned. Owners of the parcels are responsible for 100% of the property assessments, and the city reports no assessment payment delinquencies to date.

EXPANDING LOCAL ECONOMY ANCHORED IN TECHNOLOGY

Chandler’s population has more than doubled since 1990, reflecting regional growth and the city’s success in attracting and retaining top technology, manufacturing, advanced business and health services. Anchored by Intel Corporation, top employers represent technology, manufacturing, financial, health care, and telecommunication interests.

Fiscal 2016 market value of $25 billion reflects two consecutive years of strong 9.5% annual growth. The city conservatively projects modest tax base growth over the medium term.

Chandler’s unemployment rate of 4.2% as of November 2015 remains well below regional, state and national averages. Local government, public education and health services lend stability to the city’s employment base.

The city’s median household income represents 148% of state and 136% of national averages. Wealth, as measured by per capita money income, exceeds the state and U.S. level by 24% and 11%, respectively. Chandler’s economic metrics remained strong throughout the recession, mirroring the city’s employment-base strength. Poverty rates are approximately half the state and national averages.

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

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by the end of the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

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

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

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997811

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997811

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings
Primary Analyst
Rebecca Meyer
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Steve Murray
Senior Director
+1-512-215-3729
or
Committee Chairperson
Karen Ribble
Senior Director
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or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com