NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA/F1' rating to the $70,655,000 City of Greensboro, North Carolina, combined enterprise system revenue refunding bonds, series 2014A. The Rating Outlook is Stable, for the long-term rating.

KEY LONG-TERM RATING DRIVERS:

The long-term 'AAA' rating is based on the system's strong and well-managed finances, affordable and flexible rates, a manageable but rising debt profile, a sizable capital program and a transitioning but stable service area economy.

Greensboro is the county seat of Guilford County (GO bonds rated 'AAA', Outlook Stable by Fitch) and the third largest city in the state with a current population of about 280,000. The combined water and sewer utility system provides service to approximately 103,000 water and 99,000 sewer accounts in and around Greensboro (Fitch rates the city's GO bonds 'AAA' with a Stable Outlook), which is geographically located in the northern and central portion of the state known as the Piedmont region. The economy remains stable with prospects for economic development buoyed by Greensboro's university presence, educated workforce and transportation infrastructure anchored by Piedmont Triad International Airport (PTIA).

Strong financial margins underpin the 'AAA'. The system's sound financial profile results from strong fiscal management and adherence to various financial policies. The system continues to generate robust operating margins (40% in fiscal 2013) and healthy cash balances that are used to fund a sizable portion of the capital program. Coverage of senior lien and all-in debt service has historically been above 2.0x, which is the city's policy target. Fiscal 2013 debt service coverage was 2.1x for the third year in a row.

System liquidity is sound. Unrestricted cash coupled with capital reserves and renewal and replacement funds provided the system with over 400 days of cash on hand as of fiscal 2013. Liquidity, while below the median level for similarly rated systems is sufficient given the routinely strong financial margins and flexibility provided by an affordable rate structure. The average monthly residential bill for combined service for customers living within city limits remains affordable at just under $60 for 7,500 gallons, which is equal to about 1.7% of median household income (MHI). However, rates are expected to rise in order to fund the system's $260 million capital program.

The debt profile includes a large amount of variable rate debt exposure, but overall is manageable with most debt metrics close to 'AAA' medians.

KEY SHORT-TERM RATING DRIVERS:

The short-term 'F1' rating is based on the liquidity support provided by Bank of America, N.A., (rated 'A/F1', Negative Outlook), in the form of a Standby Bond Purchase Agreement (SBPA).

The SBPA provides for the payment of the principal component of purchase price plus an amount equal to 35 days of interest calculated at a maximum rate of 12%, based on a year of 365 days for tendered bonds during the weekly rate mode in the event that the proceeds of a remarketing of the bonds are insufficient to pay the purchase price following an optional or mandatory tender. The SBPA will expire on Aug. 1, 2017, the stated expiration date, unless such date is extended, conversion to the long-term rate; or upon the occurrence of certain other events of default which result in a mandatory tender or other termination events related to the credit of the bond obligor which result in an automatic and immediate termination. The short-term 'F1' rating will expire on the expiration or prior termination of the SBPA. The remarketing agent for the bonds is Merrill Lynch, Pierce, Fenner & Smith Incorporated. The bonds are expected to be delivered on or about Aug. 1, 2014.

The bonds will be issued in the weekly rate mode, but may be converted to a short-term or long-term rate. While bonds bear interest in the weekly rate mode, interest is paid on the first business day of each month, commencing Sept. 2, 2014. Holders of bonds bearing interest in the weekly rate mode may tender their bonds for purchase with the requisite prior notice. The tender agent is obligated to make timely draws on the SBPA to pay purchase price in the event of insufficient remarketing proceeds, and in connection with the expiration or termination of the SBPA, except in the case of the credit-related events permitting immediate termination or suspension of the SBPA.

Funds drawn under the SBPA are held uninvested, and are free from any lien prior to that of the bondholders. The bonds are subject to mandatory tender: (1) upon conversion of the interest rate; (2) upon expiration, substitution or termination of the SBPA; and (3) following the receipt of written notice from the bank of an event of default under the SBPA, directing such mandatory tender. Optional and mandatory redemption provisions also apply to the bonds.

Bond proceeds will be used to for the purpose of providing funds to (a) refund all of the outstanding series 1998B bonds, series 2001B bonds, series 2003B bonds, series 2005 bonds, series 2007B bonds and series 2009B bonds. For more information on the long-term rating, see the press release 'Fitch Affirms Greensboro, NC Combined Enterprise System Revs at 'AAA'; Outlook Stable, dated March 12, 2014, available on Fitch's website at www.fitchratings.com.

RATING SENSITIVITIES:

LONG-TERM RATING SENSITIVITIES:

The rating is sensitive to shifts in various credit fundamentals including maintenance of strong financial metrics. Lower financial margins and/or liquidity coupled with emerging rate sensitivity could pressure the rating. In addition, Fitch does not expect the projected additional debt to adversely impact the system's strong credit profile. Maintenance of the rating also assumes the city will continue to capably manage its variable rate debt exposure.

SHORT-TERM RATING SENSITIVITIES:

The short-term rating reflects the short-term rating that Fitch maintains on the bank providing liquidity support and will be adjusted upward or downward in conjunction with the short-term rating of the bank and, in some cases, the long-term rating of the bond obligor.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'U.S. Municipal Structured Finance Criteria', Feb. 24, 2014;

--'Rating Guidelines for Variable-Rate Demand Obligations and Commercial Paper Issued with External Liquidity Support', Jan. 27, 2014.

Applicable Criteria and Related Research:

U.S. Municipal Structured Finance Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736618

Rating Guidelines for Variable-Rate Demand Obligations and Commercial Paper Issued with External Liquidity Support

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=730736

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=839637

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