Fitch Affirms Fairbanks North Star Borough, Alaska at 'A+', Outlook to Evolving.

SAN FRANCISCO -- Fitch Ratings revises the Rating Outlook to Evolving from Positive and affirms the 'A+' rating on $146.2 million of Fairbanks North Star Borough (the borough), Alaska, general obligation bonds.

The Rating Outlook change results from the inclusion of Eielson Air Force Base on the U.S. Department of Defense base realignment and closure list (BRAC). A closure of the base could have negative impact on the borough's economy and credit quality. However, the BRAC closure list is preliminary with a final determination expected later this fall. Should Eielson remain fully operational, Fitch views the borough's credit quality as having potential for a rating upgrade, as indicated by the change to a Positive Rating Outlook from Stable on Jan. 5, 2005. Fitch's Evolving Rating Outlook incorporates both the possible negative impact of the base closure and the borough's positive credit potential should base operations not be changed.

The 'A+' rating reflects the borough's continued strong financial position, relative economic diversity, prudent management policies, and moderate debt levels. These factors are offset by the inherent vulnerability of the natural resource-based element of the economy and the area's limitations resulting from its remote location and severe climate. Location considerations also could restrict reuse potential for base land if Eielson closes or operations are reduced significantly.

The borough's location in central Alaska makes it a key service center for the state, as well as a central transportation hub. Nonetheless, the area's economy remains tied to natural resources. With an estimated population of 82,214, North Star Borough is the center of trade, commerce, and government for the state's interior. The economy is also shaped by its natural resources base and related infrastructure. The main University of Alaska campus adds some stability to the area's economy, as, to-date, have two sizable military bases. Eielson Air Force Base accounts for 8.6% of the area's employment, and full closure could result in even greater job loss over time as related businesses are affected. Unemployment rates are below those of the state but above the U.S. income levels. Income levels are high but reflect an above-average cost of living.

The borough maintains a strong financial position, bolstered by prudent management practices and increasing revenues. Taxes are the borough's primary revenue source, with both property and hotel taxes experiencing significant growth. The borough also receives substantial state funding for debt service reimbursement and school district expenses. While assessed values have been on an upward trend, Eielson's potential closing is likely to depress assessed values of two of the top 10 taxpayers in the area, military housing complexes that accounted for 1.3% of the borough's taxable value in fiscal 2004. The borough expects to increase its size through annexation of surrounding unincorporated area, with the expected development possibly offsetting some of the potential loss should Eielson close.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.