Correct: Fitch Rates Raleigh, NC's $55MM Variable Rate COPs 'AA/F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 17, 2004

(The correction clarifies language concerning the short-term rating from Friday, Feb. 13 press release.)

Fitch Ratings-New York-February 13, 2004: Fitch Ratings assigns a 'AA/F1+' rating to Raleigh, NC (Raleigh or the city) variable-rate certificates of participation (Downtown Improvement Projects), series 2004A. The bonds are scheduled to price on Feb. 17 through negotiation with Citigroup and UBS Financial Services, Inc. and mature June 1, 2031-2034.

Fitch also affirms a 'AAA' rating on approximately $139 million of outstanding general obligation bonds issued by the city. Certificate proceeds will fund land acquisition and site preparation for a new convention center, as well as capitalized interest for the first 3.5 years and other miscellaneous capital costs related to the project. The Rating Outlook is Stable.

The 'AA' rating on the series 2004 certificates of participation (COPs) is based on the transaction's satisfactory legal provisions, the non-essentiality of the financed project to government functions, and the city's strong general credit characteristics, including excellent financial management and planning and a diverse economic base. Raleigh is the Wake County seat and the state capital, providing stability to the employment base.

The city is adjacent to the successful Research Triangle Park, which continues to serve as an important economic engine even with the regional increase in unemployment over the past two years. The convention center project will result in a significant increase in debt and the city will be responsible for any future operating deficits of the center, but this concern is partially offset by the designation of certain new tax revenues to cover debt service and projected convention center shortfalls.

The short-term 'F1+' rating assigned to the COPs is based on the Standby Certificate Purchase Agreement (Standby) provided by DEPFA BANK plc, acting through its New York Agency. The standby provides for the payment of purchase price of tendered COPS and is sized to cover the principal portion of the purchase price plus 35 days of interest at a rate of 12% based on a 365-day year. The short-term rating will expire on the earlier of Feb. 20, 2014, the expiration date of the Standby, or upon the occurrence of certain events of termination, all in accordance with the terms of the Standby. The COPs will be issued in the weekly rate mode, but may be converted to a daily, bond interest term or long-term interest rate mode. While in the daily and weekly interest rate modes, interest is payable on the first business day of each month, commencing March 1, 2004. While COPs bear interest in the daily and weekly modes, holders may tender their COPs with prior notice. COPs are subject to mandatory tender on the first day of each interest rate period; on the day next succeeding the last day of each bond interest term; upon the cancellation, termination, expiration or substitution of the Standby; and, at the direction of the City while the COPs in the daily or weekly modes, on any business day with the consent of DEPFA BANK plc and Citigroup Global Markets. The COPs are also subject to optional and mandatory prepayment.

The certificates represent undivided interests in the right to receive installment payments from the city, equal to debt service, to the Walnut Creek Financing Assistance Corp. (the corporation), a nonprofit organization whose members are appointed by Raleigh's city council. The city's payments are subject to annual appropriation. As additional security for the city's obligations, a deed of trust grants a first lien for the benefit of the corporation on the land purchased for the convention center. Mortgaged assets provide a moderate amount of security, and a satisfactory amount of incentive to appropriate. Future convention center assets financed by COPs will be included in the master lease with these assets.

Although not pledged to certificate repayment, the city expects to pay installment payments and partially off-set operating costs of the convention center with surplus revenues from a 6% occupancy tax and 1% prepared food and beverage tax. Through an inter-local agreement with the city and county, the city will receive 85% percent of previously uncommitted funds from these two taxes. Debt service is back-loaded to allow the accumulation of fund reserves, as annual revenue will not always cover debt service requirements. Although there is risk that the fund will not always adequately cover debt service and the convention center deficit, Fitch believes that the city has enough financial flexibility to subsidize shortfalls from the general fund. The convention center is an ambitious project for the city and should substantial subsidies be required in excess of those indicated in the financial model, the city's overall credit quality could be negatively affected.

Financial flexibility is derived from the city's competitive tax rates and substantial reserves. The city ended fiscal 2003 with a $4.3 million drawdown to the general fund balance, largely due to continued soft growth in economically sensitive revenue streams. The 2003 unreserved general fund balance equaled $65.9 million, or a strong 28.7% of spending. Revenues for the first half of fiscal 2004 are coming in slightly ahead of budget and expenditures are projected to be under 95% of budget. The city expects to end fiscal 2004 with an undesignated general fund balance between 13% and 14% of the subsequent year's budget.

Direct debt levels are currently low, but will become moderate as the city doubles its direct debt and slows its historically rapid amortization schedule. The city's other capital needs are moderate. The city plans for its capital needs over five- and 10-year horizons.

Phase 1 of the capital improvement plan (CIP), through fiscal 2008, totals $396 million, not including $200 million of COPs being issued for the convention center. Utility projects, funded in part through revenue bonds rated 'AAA' by Fitch Ratings, make up 54% of the CIP. About 64% of the five-year general government CIP will be bond funded, with the remainder coming from sales taxes, facility fee revenues, and reserves.

The city plans to issue roughly $33 million more COPs under this master lease within the next 3-4 months and $145 million in January 2005. The city also plans to issue $22 million in general obligation bonds in March. Overall debt also is rising given Wake County's rapid school enrollment increases (a 3.2% average annual increase over the past five years). Wake County is contemplating issuing $916 million in referendum-approved general obligation school bonds through fiscal 2011.