Fitch Rates South Haven, Michigan's $1.5MM 2007 LTGOs 'A+'.

CHICAGO -- Fitch Ratings assigns an 'A+' rating to the City of South Haven, Michigan's $1.5 million limited tax general obligation (GO) capital improvement bonds, series 2007, and upgrades approximately $12 million GO debt to 'A+'. The bonds are scheduled to sell competitively on Jan. 16, 2007, with NatCity Investments, Inc. serving as financial advisor on the transaction. The bonds represent general obligations of the city payable from ad valorem taxes levied on all taxable property within the city subject to statutory and constitutional limitations. However, the city intends to repay debt service from incremental property tax revenues. Proceeds of the current issue will finance infrastructure improvements in the city's downtown area. The Rating Outlook is Stable.

The 'A+' rating reflects a consistently strong and well-managed financial position; rapidly growing tax base supported by residential development of the second-home market; and manageable debt levels particularly given the affluence of the summer residential base. The city recorded operating surpluses over the past few years leading to an unreserved general fund balance equal to 25.4% of spending in fiscal 2006 (June 30 year-end), supported by management's conservative budgeting practices. With limited capital needs and the use of internal sources for certain ongoing improvements, the city should sustain its modest debt position.

South Haven is located in southwest Michigan along the shore of Lake Michigan. Approximately 99% of the city is situated in Van Buren County with the remaining 1% located in Allegan County. The city's 2000 census population is 5,021. The population of the city increases significantly to approximately 20,000 during the summer, as second-homeowners, renters, and tourists take advantage of boating and recreational activities along Lake Michigan. Wealth levels for the city are well above county and state figures, and property value growth averaging a rapid 10.5% annually indicates significant development of residential properties. Local employment options reflect the pharmaceutical and auto parts industries, as well as a burgeoning health care sector.

South Haven's financial position is strong, characterized by healthy reserve levels and well-managed operations. The city's general fund balance equaled $1.4 million or 25.4% of spending in fiscal 2006, compared to $1.1 million (23.7%) in fiscal 2002, and has remained above 20% of spending each year since 2000. Local tax base growth resulting in steadily increasing property tax receipts has more than offset state-shared revenue declines.

Due to the seasonal nature of the city's households, its debt levels are somewhat high when measured against the year-round population. However, reflecting the significant investment of the seasonal residents, debt levels are moderate when expressed as a percentage of market value of the property tax base. Direct debt equals $2,663 per capita and 1.72% of full market value. Overall debt, representing the addition of local school district obligations, is equivalent to $6,278 per capita, and 3.5% of full market value. Repayment of debt is rapid with about 66% of principal retired in ten years. The city's future capital needs are manageable and relate primarily to water treatment plant expansion.

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