Fitch Rates Henrico County, Virginia's EDA's $37.6MM Lease Rev Rfdg Bnds 'AA+'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA+' rating to Henrico County, Virginia's (the county) $37,625,000 Economic Development Authority of Henrico County, Virginia (EDA) lease revenue refunding bonds. The bonds consist of $11,565,000 of lease revenue refunding bonds (Henrico County governmental projects), series 2009A and $26,060,000 public facility lease revenue refunding bonds (Henrico County regional jail project), series 2009B. The series 2009A bonds will refund a portion of the EDA's lease revenue bonds (Henrico County governmental projects), while the series 2009B bonds will refund a portion of the EDA's public facility lease revenue refunding bonds (Henrico County regional jail project). The bonds are scheduled to sell via negotiation during the week of Aug. 24, 2009, and will mature serially, with final series 2009A maturity on June 1, 2018 and final series 2009B maturity on Aug. 1, 2021. In addition, Fitch affirms the following ratings:

Henrico County, Virginia

--General obligation (GO) bonds at 'AAA'.

Virginia Public School Authority

--Special obligation school financing bonds, Henrico County series 2008 at 'AAA'.

Economic Development Authority of the County of Henrico, VA

--Public facility lease revenue refunding bonds (Henrico County Regional Jail Project), series 1999 at 'AA+';

--Lease revenue bonds (Henrico County Governmental Projects), series 1996, at 'AA+';

--Lease revenue bonds (Henrico County Governmental Projects), series 1998, at 'AA+'.

The Rating Outlook is Stable.

The 'AA+' rating reflects that the lease revenue bonds are subject to appropriation. Sufficient incentive to appropriate is provided by the essentiality of the financed projects and the right of the EDA to take possession of the projects in the event of failure by the county to pay rent. The 'AAA' rating of Henrico County reflects continued achievement of the highest level of credit quality due to the county's excellent financial position, strong economic growth, and moderate debt burden that is rapidly retired. Financial results have been consistently sound, leading to robust reserve levels. A self-imposed limitation on annual budget growth should support long-term financial flexibility, despite projected increases in operating expenditures associated with new capital investments. Fitch believes that the county is well positioned to manage slowing taxable assessed valuation (TAV) growth. As a result of the county's prudent financial and capital planning, debt levels are expected to remain within the county's satisfactory debt affordability guidelines.

Series 2009A bond proceeds will refund a portion of the EDA's lease revenue bonds (Henrico County governmental projects), originally issued to finance construction of certain governmental projects, including buildings for public safety and emergency communications functions. The series 2009B bond proceeds will refund a portion of the EDA's public facility lease revenue refunding bonds (Henrico County regional jail project), originally issued to finance construction of a jail. Substantially similar legal structures govern the two series. The EDA acquired a leasehold interest in the financed property under the terms of a ground lease. Pursuant to a lease purchase agreement between the county and the EDA, the county agrees to make rent payments equal to debt service on the bonds. The payments are subject to appropriation, although the county board will direct the county manager to include these payments in the annual budget. Pursuant to the trust and assignment agreements, as security for the bonds, the authority will assign to the trustee for the benefit of bondholders certain of its rights under the lease purchase agreement, including its rights, title, and interest in the lease purchase agreement, its leasehold interest in the real estate, its right to receive rental payments, and its right to take possession of the projects in the event the county fails to appropriate rent payments. Legal provisions grant the EDA the right to lease or sublease, but not sell, its interest in the jail; in contrast, it has the right to sell its leasehold interest in the governmental projects but may not convey a fee simple absolute title. The essentiality of the projects provides sufficient incentive to appropriate.

Henrico County surrounds Virginia's capital of Richmond on the northern side of the James River. The county's local employment base is substantial, and residents have additional job opportunities in the vital government and commercial centers of Richmond. The county's share of the metropolitan Richmond job market was 29% as of 2008. Fitch anticipates that the slowed development of several high-profile projects will not impede the county's long-term economic prospects. The county's June 2009 7.7% unemployment rate more than doubled in the past year and now slightly exceeds the state's 7.3%, although it remains well below the 9.7% national rate. Early 2009 closings of two of the county's largest employers, Qimonda Richmond, LLC (1,200 employees) and Circuit City Stores (1,500 jobs) is not likely to permanently weaken employment growth. County per capita personal income levels equaled an above-average 105% and 123% of the commonwealth's and nation's, respectively, in 2007.

Financial management is very strong, as reflected in high reserve levels and detailed planning. The general fund ended fiscal 2008 with a $31.5 million surplus, bringing the unreserved fund balance to a sizable 35.4% of spending. By policy, the county caps the undesignated general fund balance at 18% of spending, and excess funds are transferred to a capital projects reserve to be used for pay-as-you-go capital spending. Officials project an estimated $17 million addition to the total fund balance in fiscal 2009 and continued adherence to undesignated fund balance policy. The fiscal 2010 adopted general fund budget grew less than 1% from the fiscal 2009 budget and maintained the competitive property tax rate of $0.87 per $100 of TAV while excluding revenue attributable to the closings of Qimonda Richmond, LLC, the largest taxpayer, and Circuit City Stores. Fiscal 2009 TAV slowed from the double-digit increases of the past four years, and TAV is expected to remain relatively flat in fiscal 2010. Fitch believes the county's low property tax rate and strong reserve levels prepare it well to manage slower TAV growth and any associated revenue pressures for the foreseeable future.

With this issuance, overall debt is $2,031 per capita, or 1.5% of full market value. The debt service burden on the budget is moderate at slightly less than 7% in fiscal 2009, and amortization is well above average, with 63.4% of debt retiring in 10 years. Henrico County's $1.9 billion fiscal years 2010-2014 capital improvement plan (CIP) includes a considerable 67% of pay-as-you-go financing. Authorized but unissued debt totals approximately $153 million; the county is prepared to delay its subsequent debt issues until the overall economy strengthens.

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