NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings of Victoria County (the county), Texas:

--$9.0 million limited tax general obligation (LTGO) bonds at 'AA'.

In addition, Fitch affirms the following rating:

--Implied unlimited tax GO (ULTGO) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an annual property tax levy limited to $0.80 per $100 assessed valuation.

KEY RATING DRIVERS

CONCENTRATED TAX BASE; REGIONAL CENTER: The county serves as the regional trade center with a tax base concentration in the petrochemical industry, although this concern is mitigated to a degree by diversification within key industries in both production and end users as well as the key role oil refineries play in the national economy.

REVENUE CYCLICALITY; CONSERVATIVE BUDGETING: Conservative budgeting of expanding and volatile sales tax receipts following sharp recessionary declines underpins the county's financial flexibility. Robust revenue recovery continues to support a return to strong reserve levels.

FAVORABLE DEBT PROFILE: The county's debt profile is positive, characterized by low carrying costs, somewhat rapid principal amortization, a manageable overall debt burden, and modest future debt plans.

RATING SENSITIVITY

REVENUE VOLATILITY: The rating is sensitive to economic and resultant revenue volatility associated with petrochemical industry concentration. The Stable Outlook reflects Fitch's expectation that the county will continue to actively manage its budget to maintain high levels of financial flexibility.

CREDIT PROFILE

Victoria County is located between Houston and Corpus Christi and posted a 2012 census population of 89,269. The city of Victoria (LTGO rated 'AA' by Fitch, Stable Outlook) is the county seat and is located 30 miles inland of the Gulf of Mexico. The city is a regional trade and retail center of the seven-county region known as the 'Golden Crescent'.

GROWING ECONOMY CONCENTRATED IN PETROCHEMICALS

The county has benefited from the city's emergence as a regional service and supply center for heavy industry, including plastics manufacturing and petrochemicals. Development of the service and retail sectors offers increased economic diversification and complements the county's industrial base.

Recent commercial development in the county includes phases II and III of the new Caterpillar Inc. plant scheduled for completion by 2016, adding a total of 700 jobs to the local economy all in. In addition to the Caterpillar plant, investments in the local economy include manufacturing facilities, expansion at the INVISTA plant, and the construction of an Emerging Technology Center by the Victoria College Board of Trustees.

The growth of commercial manufacturing paired with continued oil and gas exploration and production in the adjacent Eagle Ford Shale formation have steadily benefited county employment levels. The unemployment rate remains low and decreased to 4.5% in November 2013 from 5.1% a year prior, while the labor force increased 2.0% over the same period. Income metrics are mixed but have improved significantly in recent years, with median household income growth of 3.4% outpacing the 1.3% national compounded annual rate from 2008-2012. Median household income stands at 94.2% of the national average as of 2012.

STRONG GROWTH IN TAX REVENUES

Commercial investment in the county has added to the property tax base and boosted local sales tax in the county. Property taxes make up roughly half of county revenues. Property tax revenues in 2010 and 2011 were fairly flat as a result of minimal TAV growth. TAV rebounded in fiscals 2012 - 2014, supporting 14.2% property tax revenue growth over the period. Management's expectations for similar growth going forward appear reasonable given ongoing activity.

Sales tax revenues comprise about one-quarter of general fund revenues and are inherently cyclical. Fitch views the county's conservative budgeting of sales tax revenues following sharp recessionary declines as a key credit strength. Sales tax performance in fiscal 2012 exceeded the final budget by $2.7 million, a positive variance of 31.3%.

Recent growth in sales taxes is supported by the county's proximity to the Eagle Ford Formation and the associated economic activity in the Port of Victoria (Victoria County Navigation District ULTGOs rated 'AA' by Fitch, Outlook Stable). In fiscal 2012, general fund sales tax revenues totaled $11.2 million, up 17.5% from the previous year, with a smaller 1.4% increase in 2013.

GENERAL FUND RESERVES REBUILT

Robust economic activity and resultant tax revenue growth support strong reserve levels over the last three years. The county exceeded its new fund balance target of 18 - 25% of spending in fiscal 2012 after significant draws in previous years due to revenue declines. Fiscal 2012 ended with a strong 36.5% of spending in unrestricted fund balance, or $11.7 million. Estimated 2013 results include an addition to unrestricted fund balance of over $2 million, or 6.5% of spending, driven primarily by sales and property tax revenue growth.

The 2014 county budget again includes a conservative 9.6% decline in sales tax revenues and is balanced without the use of reserves. Spending is set to increase 5.5% from the 2013 budget, or an increase of $1.9 million. The tax rate will stay flat in 2014 at $0.3986 per $100 TAV, well below the $0.80 state cap. Management expectations for a $1 million surplus seem reasonable.

FAVORABLE DEBT PROFILE

The county's overall debt levels are manageable at $3,475 per capita and 4.6% of market value, and comprised primarily of overlapping debt from school districts. Amortization of debt is just above average with 64% of principal paid off in ten years.

The absence of a formal capital plan is a credit weakness and Fitch believes continued capital needs are likely given economic activity. The county projects near-term issuance of $6 - 7 million for additional courthouse facilities and infrastructure needs.

MANAGEABLE PENSION & OPEB LIABILITIES

The county's pension plan is provided through the Texas County and District Retirement System, an agent multi-employer plan. The Dec. 31, 2011 funded ratio was 82.6% or a still satisfactory 75.0% after using Fitch's more conservative investment rate assumption of 7%.

Other post-employment benefits (OPEB) are largely associated with retirees' participation in the county's self-insured health care plan. OPEB is funded on a pay-go basis, subject to annual approval by county officials. Carrying costs for the county (debt service, pension, OPEB costs) totaled a low 9.4% of governmental spending in fiscal 2012 and are expected to remain manageable going forward.

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, and the 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=819857

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