Alameda County, Calif., ICR Upgraded to Aa1 by Moody's

Moody's Investors Service said it has upgraded the issuer rating of Alameda County, Calif., to Aa1 from Aa2 and the rating on its lease-supported obligations to Aa3 from A1.

Moody's has also confirmed the Aa3 ratings on the county's outstanding pension obligation bonds.

The upgrade reflects the county's exceptionally strong financial position as it emerges from the recent severe economic downturn. Throughout the downturn, as other counties in the state were struggling with revenue shortfalls, and often relying on their reserves, Alameda County continued to add to its reserves.

It now boasts the strongest reserve position among the largest and most highly rated counties in the state. Alameda County faced similar revenue challenges as other counties in the state, namely declining tax revenues and reduction in state funding.

However, with a general fund budget that is nearly structurally balanced, the county faced this challenge with minimal expenditure cuts and no significant lay-offs since 2009. Also key to the upgrade is the steady recovery of the county's economy, as reflected in recent growth trends in jobs and property tax base, both of which have nearly recovered to pre-recession levels.

With its diverse local economy, whose growth rates are expected to outpace the national growth rate as a whole, the county is likely to continue to enjoy strong financial operations for the foreseeable future.

A key credit negative is the county's above average lease and pension obligation burden. However two-thirds of this burden is due to the county's pension obligation bonds, which mature in six years.

The two notch rating distinction between Aa3 rating on the county's lease-backed obligations and pension obligations and its Aa1 issuer rating represents the weaker security pledge for lease-backed obligations and pension obligations and reflects the additional risk to bondholders from the county's financial, operational, and economic conditions over the more secure general obligation pledge. Lease-backed obligations are contractual and conditioned on use and/or occupancy of the least asset, effectively on parity with a county's other unsecured obligations. The county's issuer rating reflects what its secured, general obligation rating would be if the county issued such debt.

The outlook on these ratings is stable, reflecting the county's overall economic stability and its demonstrated ability to maintain budgetary balance and comfortable operating reserves even during a period of economic and financial downturn.

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