Fitch Affirms Eagle Pass TX at 'A+'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A+' rating on the following Eagle Pass, TX's (the city) outstanding obligations:

--$8.2 million combination tax and limited pledge revenue certificates of obligations (COs) series 2013;

--$9.6 million general obligation (GO) tax refunding bonds series 2010 and series 2012.

The Rating Outlook is Stable.

SECURITY

The GOs and COs are payable from an annual property tax levy, limited to $2.50 per $100 of taxable assessed valuation (TAV). The COs are additionally payable from surplus revenues from the city's drainage utility system.

KEY RATING DRIVERS

SOUND FINANCIAL RESERVES: The city's credit profile is characterized by a strong and stable fund balance position resulting from conservative budgeting and growth in key revenue streams.

TAX BASE GROWTH: The city's tax base has proven resilient and diverse, showing minimal contraction post-recession and several years of strong growth thereafter.

WEAK SOCIO-ECONOMIC PROFILE: Educational attainment and income/wealth metrics of the area remain well below average despite better than average gains in personal income. Unemployment remains high.

MODERATELY HIGH OVERALL DEBT / PENSION WELL-FUNDED: Overall debt levels are elevated partly due to overlapping school district debt. Capital needs are manageable and retiree benefits affordable.

RATING SENSITIVITIES

MAINTAINANCE OF STRONG RESERVES: The rating is sensitive to material deterioration in the city's historically sound reserves that help mitigate risk associated with the general fund's reliance on economically sensitive revenue streams.

CREDIT PROFILE

BI-NATIONAL METROPOLITAN AREA

Eagle Pass is located approximately 140 miles southwest of San Antonio and provides a port of entry into Mexico through Piedras Negras. The combined population of the Eagle Pass and Pierdras Negras (EG-PN) metropolitan area approximates 250,000, providing a solid base for trade and tourism. Eagle Pass is also the county seat and commercial hub of Maverick County, whose economy is based on agriculture and mineral production.

The $1.3 billion tax base has grown at a healthy annual average pace of just over 5% over fiscals 2008-2016 with only one year of modest recessionary dip in fiscal 2011. Management anticipates at least modest TAV growth in the near-term due to retail and residential development underway. The tax base is diverse with government, retail, health care, utility, and real estate industry prominence.

Unemployment remains high, although it has gradually fallen from a 2010 recessionary high of 15.8%. Minimal gains in both employment and labor force growth led the city's year-over-year unemployment rate to remain stagnant at 9.7% as of September 2015, which exceeded the state (4.4%) and national (4.9%) averages. Income and wealth levels are significantly lower than state and national averages (median household income totaled about 65% of the state and nation in 2013), but have shown some improvement due to expanded economic activity.

STRONG FINANCIAL RESERVES

The general fund is operationally balanced and reserves have been augmented in recent years due to strong sales tax collections, tax base appreciation, and modest increases in the maintenance and operations tax rate. Audited fiscal 2014 year-end results were break-even and unrestricted reserves remained at $5.7 million, or a strong 29% of spending.

Management expects the fiscal year that ended Sept. 30, 2015 to add about $400,000 to reserves and will keep in line with management's policy of maintaining between 25% - 30% of the prior year's budget in reserves. The fiscal 2016 adopted budget is balanced and includes a 4% increase over the prior year's budget due to additional property tax revenues and a toll increase for commercial vehicles that cross the international bridge system.

Both bridge traffic fees and sales tax collections have favorably exceeded budgeted expectations in recent years. Sales tax revenue (which provides about 25% of general fund revenue) exceeded the budget by $200,000 or about 4% in fiscal 2015. The annual transfer to the general fund from the international bridge fund represents a significant 35% of general fund revenues. The city reports a year-over-year increase in both commercial and passenger vehicles for fiscal 2015, representing about $800,000 in additional bridge fee revenues over the budget. The essentiality of the bridge system for international trade and management's practice of conservatively budgeting economically sensitive revenues mitigates concern over city's dependence on these revenue streams.

MANAGEABLE DEBT BURDEN AND OTHER LONG-TERM LIABILITIES

Overall debt levels are moderately high and approximate 6.2% of fiscal 2015 market value or $3,100 per capita due in part to overlapping school district debt. Outstanding debt is amortized at a good clip with 68% retired in 10 years. General fund capital needs are modest in nature and the city has ample room in its debt service tax rate of $0.205 per $100 TAV in 2016 to afford future needs.

The city's pension plan and other post-employment benefits (OPEB) are through the Texas Municipal Retirement System (TMRS), a statewide agent multiple-employer plan. Funding levels are stable at a sound estimated 92.0% funded position based on an investment rate assumption of 7% as of the last actuarial valuation (Dec. 31, 2013). The city routinely funds 100% of annual required contribution to TMRS. Carrying costs for the city (debt service, pension, OPEB costs, net of self-supporting enterprise debt) totaled a manageable 14.8% of governmental spending in fiscal 2014.

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 fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 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 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, and the Municipal Advisory Council of Texas.

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=993500

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993500

Endorsement Policy

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20151105006405/en/

Fitch Ratings
Primary Analyst
Leslie Ann Cook
Analyst
+1-512-215-3740
Fitch Ratings, Inc.
111 Congress Ave, Ste 2010
Austin, Texas 78701
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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