Correct: Fitch Rates Memphis, TN $36MM GOs 'AA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 16, 2003

(In a press release issued earlier, the sale was erroneously described as competitive in the first paragraph. The bonds will sell through negotiation. The amended release follows.)

Fitch Ratings has assigned a 'AA' rating to the city of Memphis, Tennessee's approximately $36,000,000 general improvement refunding bonds, series 2003. The bonds are scheduled to sell on June 19 through negotiation with a syndicate led by Morgan Keegan & Company, Inc. Fitch affirms its 'AA' rating on the city's $902 million in outstanding general obligation debt.

The Rating Outlook for Memphis's general improvement bonds is Stable. Prudent expenditure management and moderate tax base growth, along with a willingness to increase property tax rates when needed, continue to facilitate financial stability. Residential and commercial reinvestment in downtown Memphis has been impressive, and progress continues. The city's population grew during the 1990s, reversing prior losses. The rating and Stable Outlook also considers the city's above-average debt levels and sizable, although manageable, borrowing plans.

Memphis grew by nearly every economic measure during the 1990s, as residential opportunities became more attractive and commercial sectors strengthened and diversified. Corporate investment was very significant in the area. With major employment in the distribution, agribusiness, warehousing, health care, higher education, government, and tourism sectors, regional job growth has been sound. Although recent employment statistics show some weakness, and FedEx has announced voluntary early retirement and severance programs at its largest operating unit, long-term prospects are good due to the diversification and stability of the employment base.

Credit strengths include historically sound financial operations, along with tax base, economic, and revenue growth. Despite a weakening in the area's substantial tourism-based economy and the economic significance of Memphis International Airport (revenue bonds rated 'A+' with a Negative Rating Outlook by Fitch), the city's general fund generated sizable surpluses in the past two fiscal years after three consecutive drawdowns. The city's unreserved general fund balance has been above the targeted level in every fiscal year since 1994. The target for undesignated balance was recently increased to 10% of annual expenditures from 5%-8%.

Receipts of sales tax and other economically sensitive taxes declined in each of the past two fiscal years, but property tax revenues remain strong and expenditure growth has been kept in check. The city projects balanced operations for fiscal 2003. The fiscal 2004 general fund budget includes a small fund balance drawdown, but revenue estimates appear to be conservative to moderate, and the city conservatively projects spending levels. Tax revenues from three recent annexations will be realized for the first time in fiscal 2004.

Credit concerns center on the city's direct and overlapping tax supported debt levels, which have risen in recent years to a level considered well above average by Fitch. Overall debt is 6.2% of market value, including sports authority obligations supported by various taxes, with a 50% debt service makeup provision by both the county and the city. Net direct debt service was 15.3% of tax supported spending in fiscal 2002. The city's fiscal years 2004-2008 capital improvement program (CIP) projects $711 million in general obligation bond issuance, which should be a sustainable pace, considering both the current above-average rate of debt amortization and expected tax base expansion. Household buying income remains below national averages.