AUSTIN, Texas, Apr 04, 2013 (BUSINESS WIRE) — Fitch Ratings has assigned an 'AA' rating on the following Granbury, TX's (the city's) debt obligations:

–$8.2 million general obligation (GO) refunding bonds.

The bonds are scheduled for a negotiated sale the week of April 8, 2013. Proceeds from the refunding bonds will be used to refund portions of the city's outstanding debt for interest savings.

In addition, Fitch assigns an 'AA' rating to the following obligations (on a pre-refunded basis):

–$13 million GOs;

–$17.3 million combination tax and revenue certificates of obligation (COs).

The Rating Outlook is Stable.

SECURITY

The GO bonds and COs are secured by an annual property tax levy limited to $2.50 per $100 taxable assessed valuation (TAV). The COs are additionally secured by a pledge of net revenues of the city's water, sewer and electric utility system.

KEY RATING DRIVERS

PRUDENT FINANCIAL MANAGEMENT: The city's financial profile is characterized by substantial reserves and generally positive operating results. Structural balance was achieved during the recession through expenditure reductions and officials have maintained lean operations with continuing cost savings.

SALES TAX RELIANCE: Credit concerns over the city's reliance on economically sensitive sales tax receipts for operations are partially offset by its large financial reserves, conservative budgeting, and demonstrated ability to make significant mid-year budget adjustments. Additionally, a low property tax rate provides flexibility in the event the city needs to adjust its revenue composition in the future.

MANAGEABLE DEBT BURDEN: The city's overall debt burden is expected to remain moderate as the city has no future debt plans. Near term governmental capital needs are supported by outstanding bond proceeds, third-party grants and general fund monies.

SMALL, STABLE LOCAL ECONOMY: The city has a small population but its local economy is sound, serving both as a bedroom community of Forth Worth and as a growing business center for Hood County. Tourism and recreation also benefit the city's employment and sales tax base. Government, education and medical service providers are among the leading employers, lending stability to the city's employment base.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the city's strong reserves which help to mitigate exposure to the inherent cyclicality of sales tax revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Granbury is located 25 miles southwest of Fort Worth with an estimated 2013 population of 8,648, representing a larger than 40% increase from the 2000 census total.

FORT WORTH BEDROOM COMMUNITY / COMMERCE CENTER

Granbury serves as the county seat and retail hub for Hood County and the surrounding area, drawing more than 60,000 people from within a 10 mile radius to the city's big-box stores. Lake Granbury, running through the historic downtown, and the 18,000 square-foot Granbury Resort Conference Center attract visitors from outside the region, also contributing to the city's sales tax base.

Proximity to the Dallas/Fort Worth metroplex, land affordability and lake access support a growing commuter and retiree population. New construction has stabilized the city's TAV since fiscal 2011 on the heels of 15% average growth during the preceding four years. The city expects stable TAV over the next several years, which Fitch believes is reasonable.

Commercial and industrial property comprises a moderate 27% of the city's tax base. The city has moderate taxpayer concentration with the top 10 taxpayers making up 9.2% of total TAV, represented primarily by real estate, retail, and health care organizations. Soon to be completed transportation projects including Northeast loop 567 and airport expansion (additional hangars and a runway extension to better accommodate corporate jets) bode well for the city's future growth prospects.

SOUND FINANCES; VOLATILE SALES TAXES

Sales tax receipts provide 59.3% of the city's operating revenues, followed by property taxes (14.1%), franchise taxes (13.5%), fees and service charges (9.3%). Sales tax receipts increased by a total of 28% during fiscal 2007 and 2008 before registering a 16% loss during the next two years reflecting the impact of the recession on the general economy. Officials trimmed expenditures, primarily through reduced capital outlays and a hiring freeze to achieve structural balance and maintain the city's reserves.

Fiscal 2012 sales tax receipts of $6.3 million are up more than 8% annually for the second consecutive year, reflecting new retail establishments and improvement in the local economy. The city applied $.5 million in fiscal 2012 surplus sales tax revenues to one-time and capital expenditures, finishing the year with a $359 thousand (3.4%) net surplus. The unrestricted general fund balance of $4.5 million represents a high 42.2% of spending and transfers out and an important mitigant to inherent revenue volatility. Fitch expects reserve levels to remain at or above the city's policy minimum of 25% of spending and for operations to remain balanced. Management expects further additions to its unrestricted general fund reserves based on strong fiscal 2013 year-to-date performance.

MANAGEABLE DEBT BURDEN

Overall debt is moderate at 2.8% of market value but higher per capita at $4,548 given the smaller population. Principal amortization is rapid at 73.8% in 10 years. Near term capital expenditures are focused on airport expansion and hangars to meet a strong demand from private and corporate interests, park and street improvements.

Granbury's pension plan is provided through the Texas Municipal Retirement System (TMRS), with an adequately funded position of 76.4% as of Dec. 31, 2011, based on the TMRS investment rate assumption of 7%. The city does not subsidize retiree health insurance premiums and does not have any other post-employment benefit obligation. Carrying costs for debt service and pension actuarially required contributions attributed to governmental operations (net of capital) total $3.7 million, or a sizable 26.2% of fiscal 2012 spending.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors, and the Municipal Advisory Council of Texas.

Applicable Criteria and Related Research:

–'Tax-Supported Rating Criteria' (Aug. 14, 2012);

–'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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SOURCE: Fitch Ratings