Fitch Rates Guilford County, North Carolina's $40.4MM GOs 'AA+'; Stable Outlook.

NEW YORK -- Fitch Ratings has assigned an 'AA+' rating to Guilford County, North Carolina's estimated $40.4 million general obligation (GO) bonds, series 2007C. The bonds are scheduled for competitive sale on March 13, 2007. Fitch also affirms the 'AA+' rating on the county's outstanding $419.5 million in GO debt. The Rating Outlook is Stable. The county will issue $145 million of variable-rate GO bonds in late March that will be supported by a liquidity facility provided by Dexia Credit Local, New York Branch. Fitch expects to assign ratings to the variable-rate bonds nearer to their closing.

The 'AA+' rating recognizes Guilford County's diverse and expanding economic base, moderate debt levels, solid financial position, and conservative budgeting practices. The county's reserve levels are sound, due in part to its use of capital project fund reserves in the past four fiscal years to offset recurring general fund expenditures. Pressure on the general fund operating budget will likely continue due to increased school and jail capital requirements. The county estimates that school capital funding for the foreseeable future will equal $75 million annually, and the jail is expected to cost over $100 million. Even with future debt issues, the county's debt burden should remain moderate, as Guilford has historically utilized significant amounts of general fund resources for capital outlays.

Located in the Piedmont region in central North Carolina, Guilford is one of the state's major commercial and industrial centers. The growing presence of high-tech firms has offset the decline in textile and apparel manufacturing. Long-term economic prospects are enhanced by the recent announcement by Honda Aircraft Company, Inc. of plans to locate its world headquarters and HondaJet production facility in Guilford. Additionally, Federal Express Corp. is establishing its fifth national hub in the county, and Dell Inc. has located a new manufacturing facility in nearby Winston-Salem. High Point is internationally renowned for semi-annually hosting the world's largest wholesale home-furnishings market. As a result of the strong economy, the county's unemployment rate has been below the state's since at least 1997, although the gap has narrowed recently. The population of 443,519 has grown 1% annually since the 2000 census, slower than North Carolina's 1.5% annual growth and significantly slower than the county's 1.9% annual growth in the 1990s. Although from 2000-2004 the 1.7% average annual per capita personal income growth has lagged behind North Carolina's 2.0% growth rate, in 2005 the per capita income was 10.4% above the state's.

Over at least the past five fiscal years, the county has maintained solid unreserved general fund balances. It has increased the fund balance in each of the past four fiscal years, though primarily as a result of transfers from capital projects funds, thus reducing the capital projects' fund balances and their financial ability to cushion the county. The county plans to discontinue its reliance on the transfers. Sales tax revenues are gaining strength; after four years of retail sales decreasing or remaining nearly flat, retail sales rose by 8.7% in fiscal 2005, and sales tax collections for fiscal 2007 to date are 11% higher than those in the comparable period in fiscal 2006. The fiscal 2007 budget increases education spending by 10.2% above the level projected in the fiscal 2006 budget, although it decreases human services spending by 2.9% due to state changes regarding the funding and delivery of mental health services.

Even with the issuance of the upcoming $145 million variable-rate bonds, the county's debt levels will remain moderately low, with net direct debt at 1.4% of market value. The county's $34 million five-year capital improvement plan (CIP) for fiscal years 2007-2011 excludes many of the projects funded by the forthcoming variable-rate issue and the current issue and does not include additional school and jail capital needs. Guilford tentatively plans to issue another $300 million in GO school bonds over the next five years, subject to the success of a planned November 2007 referendum. Additionally, during the course of the CIP the county will issue $25.5 million in community college and park bonds and obtain financing for the jail. The county projects that its debt service as a percentage of expenditures will remain below a manageable 12% through fiscal 2011.

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