Moody's Investors Service said it has upgraded the issuer rating of Ventura County, Calif., to Aa1 from Aa2 and has confirmed the Aa3 ratings on the county's outstanding lease supported obligations totaling approximately $93.7 million, including the 2009 certificates of participation and the 2003 certificates of participation (Public Financing Authority II).
Moody's has also upgraded to A1 from A2 the rating on the county's lease revenue tax-exempt commercial paper notes (bank bonds). The outlook on these ratings is stable.
The issuer rating upgrade primarily reflects the county's exceptional record of sound financial management throughout the economic downturn.
The county has recorded general fund surpluses in each of the last four fiscal years and improvements in its governmental funds' net asset values in each of the last five years. As a result, its reserve position and liquidity have improved over time and are now comparable to national medians for Aa1 rated counties.
The county's strong financial position complements its other fundamental credit factors which have for some time been comparable to the average for Aa1 rated counties. These other factors most significantly include the county's very large tax base and above average socioeconomic profile. Despite the last few years' slight downward adjustments in assessed valuation, Ventura County's property tax base has proven quite stable and is projected to remain stable in the near-term.
The county has no general obligation debt burden on this property tax base. The county's unemployment rate has been consistently below the state rate, reflecting the relatively strong local economy. The county's population appears to have benefited from the size and diversity of the region's economy given the general stability in income levels reflected in the 2010 census results. Moody's notes county management's proactive budgeting practices and conservative fiscal policies as a credit strength.
The two notch rating distinction between Aa3 rating on the county's lease-backed obligations and its Aa1 issuer rating represents the weaker security pledge for lease-backed 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 obilgations 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 confirmation of the Aa3 rating on the county's 2009 certificates of participation and the 2003 certificates of participation (Public Financing Authority II) also reflects the standard abatement lease structure of these obligations, including the standard debt service reserve fund sized at the three-tier test.
The upgrade to A1 from A2 of the lease revenue tax-exempt commercial paper notes (bank bonds) reflects the upgrade of the county's issuer rating. The bank bond rating was given a three notch rating distinction from the issuer rating because the underlying lease structure lacks a debt service reserve fund, a notable weakness relative to the county's other leases. The lease structure underlying the bank bonds is otherwise the standard California abatement lease agreement.
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.