Fitch US Muni Surveillance: Henderson County, North Carolinas GOs Affirmed at AA-; COPs at A+

In the course of routine surveillance, Fitch Ratings affirms the ‘AA-‘ rating on Henderson County, North Carolina’s (the county) $2.9 million in outstanding general obligation bonds (GOs) and the ‘A+’ rating on $72.8 million of outstanding certificates of participation (COPs). The Rating Outlook is Stable.

The ‘AA-‘ GO rating reflects the county’s solid financial performance and healthy financial flexibility, a low debt burden with rapid amortization of principal, and the stable and diverse local economy which includes manufacturing, tourism, agriculture, and healthcare. The ‘A+’ rating on the COPs reflects the solid legal provisions and essential nature of the leased assets in addition to the county’s sound underlying credit fundamentals. The COPs are secured by annual lease payments made by the county to the Henderson County Governmental Financing Corporation; these payments are subject to appropriation.

Henderson County is located in the southwestern part of North Carolina, less than one hour from Asheville, along the South Carolina border. The economy is diverse and consists of a mix of tourism, agriculture, light manufacturing, and healthcare. Tourist attractions include the Smoky and Blue Ridge Mountains and a number of historic sites. Major private sector employers include Margaret R. Pardee Hospital and Park Ridge Hospital, representing over 2,000 health services jobs, Wilsonart International and Meritor Automotive, Inc., which account for roughly 1,100 manufacturing jobs. The county’s unemployment rate has increased significantly year-over-year, to 6.7% in December 2008, but has consistently remained below the state and national averages. Wealth indicators for the county are below-average relative to the nation; per capita income for 2007 was 94.4% of the national average.

Financial operations are sound, and available reserves, which have increased significantly in the past three fiscal years, should provide an adequate cushion to weather potential shortfalls. Fiscal 2008 closed with an unreserved fund balance of $24.3 million, equal to 22.3% of spending, which is a considerable increase from fiscal 2005, which ended with an unreserved fund balance of $9.9 million and 11.6% of spending. County policy dictates that unreserved fund balance must be at least 12% of prior year expenditures. Given that the current reserve level is well in excess of the policy provision, county officials may consider utilizing fund balance to alleviate added debt service costs, in light of current revenue weakening from a recessionary economy.

Debt levels are low and amortization of principal is rapid. While the county has postponed discussions related to implementation of a 12-year capital improvement plan (CIP), capital needs and debt affordability are carefully monitored over a four to five year period. While Fitch believes the long range CIP would be a beneficial planning tool, capital needs related to education and general county projects appear manageable after a short term spike in school enrollment earlier in the decade.

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