Fitch Ratings Upgrades Del Rio, Texas' Ctfs Of Obligation To 'A-'.

Business Editors

Fitch Ratings has assigned an 'A-' rating to the $5,400,000 combination tax and revenue certificates of obligation, series 2002 of Del Rio, Texas (the city). Additionally, the rating on the city's $40,082,000 in certificates of obligation outstanding has been upgraded to 'A-'. Dated June 15, 2002, the new issue is scheduled to sell on or about July 9 via negotiation to SWS Securities. The certificates will mature serially July 1, 2003-2017, with maturities on or after July 1, 2013 subject to optional redemption at par plus accrued interest, on July 1, 2012, or any date thereafter. Repayment security is provided through an ad valorem tax levy against all taxable property in the city, subject to a $2.50 per $100 assessed value limitation, and a pledge of limited surplus revenues, not to exceed $1,000, of the city's toll bridge system. Proceeds of the certificates will be used to construct and improve streets.

The upgrade to 'A-' reflects the management and financial reforms, and the continuation of the increases in undesignated financial reserves and revenue generation. Under the stewardship of the mayor and council, staff has implemented conservative budgeting, scrupulous financial monitoring, and the fee increases necessary to not only sustain operations, but also to build reserves and liquidity. Particularly, bridge toll increases have benefited general fund reserves and water rate increases are expected to provide more of a margin for related debt service on current and future issues. Action to provide the necessary revenue for operations and debt service, as well as to build and maintain reserves, has been pursued, formulating a longer trend of fiscal discipline. The expectation is for these processes to continue, potentially as institutionalized policies, allowing focus to shift to further planning and economic development.

Located along the Texas-Mexico border, the city is approximately 150 miles west of San Antonio and has an estimated population of 33,867. The city's economy is based on maquiladora (twin plant) manufacturing, government sector employment, and tourism. Ciudad Acuna, on the Mexican side of the Rio Grande River, had an estimated population of 110,000 in 2001. Laughlin Air Force Base, located five miles east of the city, employs approximately 2,400 military and civilian staff. Lake Amistad, a 127-mile reservoir on the Rio Grande River, is a major tourist destination in the area. Unemployment has historically been high in the area and registered 7.6% in the county as of April 2002 and wealth levels are significantly below average.

City financial reserves were severely depleted in fiscal 1998, with undesignated balances in the general fund totaling 1.3% of expenditures and transfers. Also, in fiscal 1997, the water and sewer funds were in technical default due to a decline in debt service coverage. However, since then, two consecutive increases in toll bridge revenues, effectively doubling the rate, have led to operational stability and the development of sizable reserve and liquidity levels in the general fund. Also, three consecutive increases in the water rates have and will provide the resources to meet operational and debt requirements, enhancing financial margins in the utility fund. The undesignated general fund balance was $5.7 million, or 40.6% of expenditures and transfers out, at the end of fiscal 2001 and the current projections for fiscal year end 2002 is an addition of $250,000 to that total. Sales tax and toll bridge revenue growth has stabilized after showing moderate increases in the past few years.

The city council recently adopted a five-year capital plan totaling $47.7 million and this is the first debt installment under the plan. Currently, all of the plan is expected to be debt financed, although staff will aggressively pursue grant funding opportunities. Approximately half of the plan, $22 million, will be for water and sewer purposes, with $15 million dedicated for street improvements and $5.2 million for public safety. Direct debt burden is low at $230 per capita and 1.2% of taxable assessed valuation (TAV). Including state support for the local school district, overall debt burden is also low to moderate, at $387 and 2%, respectively. Debt amortization is average at 46.8% in 10 years and debt service represented a modest 3.7% of expenditures and transfers in fiscal 2001.