DIARY-Emerging Markets Economic Events to Oct. 4
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Aug 7 - Fitch Ratings has affirmed the following rating for the city of Hayward, California (the city): --$26.1 million 2007 refunding certificates of participation (COPs) (Civic Center and Capital Projects) at 'AA'. In addition, Fitch assigns the following rating: --Implied general obligation at 'AA+'. The Rating Outlook is Stable. SECURITY The COPs are secured by lease rental payments made by the city for use of the civic center and are subject to annual appropriation. The city is not obligated to levy or pledge any form of taxation to repay the COPs. KEY RATING DRIVERS NARROW LOCAL ECONOMY: Government, education and health, and manufacturing underpin the city's employment base, although residents benefit from the wider employment opportunities available from the greater San Francisco Bay area. Socio-economic indicators are mixed when compared to national averages. PLANNED RESOLUTION OF STRUCTURAL IMBALANCE: The solid management team has demonstrated a willingness to curtail expenses sharply and implement revenue enhancements to address long-standing budgetary imbalances, resulting in the planned elimination of projected out-year operational gaps. Fitch will view negatively a reliance on reserves or one-time revenues in order to balance the fiscal 2014 budget. SOUND RESERVES: Conservative budgeting coupled with one-time remedies has permitted the city to maintain consistently solid general fund reserve levels. Liquidity levels are moderately high. WELL-MANAGED DEBT BURDEN: Overall debt levels are moderately low and capital plans do not rely upon debt financing. Rising pension costs have the potential to pressure the credit. LEASE REVENUE BONDS: The one-notch rating distinction on the lease revenue bonds reflects the city's general credit quality as well as covenant to budget and appropriate sufficiently for lease rental payments, a requirement for rental interruption insurance, and the use of essential city property as security. WHAT COULD TRIGGER A RATING ACTION FAILURE TO ACHIEVE STRUCTURAL BALANCE: The city's inability to match recurring revenues to expenditures by fiscal 2014 could indicate a systemic degree of financial pressure that is inconsistent with the current rating. DETERIORATION OF RESERVES: Near-term fund balance use above current projections could compromise the city's financial cushion. CREDIT PROFILE LONG-TERM STRUCTURAL IMBALANCE The city's financial profile has consistently reflected budgetary imbalances. One-time measures have supplemented conservative revenue forecasting and substantial expenditure reductions to allow the city to maintain solid reserves. The city's liquidity position is consistently healthy, with general fund cash exceeding liabilities by approximately four times for the past three fiscal years. Total city revenues have increased since the economic downturn, as a voter-approved utility user tax that became effective in fiscal 2010 helped offset property and sales tax declines. The city and its employees agreed upon stringent cost containment measures, including furloughs, retirement packages, and departmental tightening in response to the on-going revenue declines. Nevertheless, the city has been unable to realize positive operating margins. One-time transfers to the general fund and prudent revenue forecasting drove the fiscal 2010 surplus of $4.2 million. Fiscal 2011 concluded with an $11.1 million surplus, equal to 9.1% of spending, largely attributable to a $10.3 million land transfer into the general fund. Non-recurring revenues of approximately $2 million were necessary to realize the operating portion of the surplus. The city's unrestricted fund balance equalled a solid 24.5% of spending, consistent with the prior year's results, since the portion of the surplus attributable to the land transfer was categorized as restricted fund balance. The adopted fiscal 2012 budget utilized non-recurring revenues, including a $4.2 million fund balance appropriation, to help close a $20.6 million gap, equal to a high 16.9% of spending. The city reports that fiscal 2012 expenditures are tracking well. In addition, revenues, including sales taxes, are slightly above budget. Currently, the city projects that fund balance use should be less than $3.4 million and possibly below $2 million. PLANS TO RESTORE BUDGETARY STABILITY The biannual fiscal 2013-2014 budget outlines the city's plan to institute structural balance, even with the continued pressure attributable to rising pension costs. City employees have agreed to further wage and benefit concessions and the city has indicated its willingness to implement revenue enhancements. The fiscal 2013 budget incorporates the use of around $4.6 million of reserves in order to mitigate the need to institute all of the employee concessions immediately. The budget includes an additional use of $1.1 million of fund balance to fund one-time expenses. The fiscal 2014 baseline budget indicates the need for $5.6 million of reserves and out-year gaps increased to $22.5 million by the end of the 10-year forecast period. City management has since identified additional expenditure reductions that it believes will reduce the out-year gaps to no more than $12.4 million during the forecast period. The identified out-year gaps are driven by planned other post-employment benefit (OPEB) contributions, deferred capital expenses, and some assumed wage increases. City officials have indicated that they are committed to eliminating the operational portions of the out-year gaps. The city plans to revise the fiscal 2014 budget so it will be structurally balanced and to continue in the out-years to identify sufficient recurring revenues to meet expenses, including funding of the OPEB annual required contribution (ARC). Fitch will not consider the use of reserves to finance capital or other one-time projects as a credit weakness, assuming maintenance of sound reserves. However, Fitch believes a failure of the city to adopt a structurally balanced budget by fiscal 2014 indicates a systemic imbalance that would be inconsistent with the current rating. MANAGEABLE FINANCIAL RAMIFICATIONS FROM RDA DISSOLUTION Fitch does not anticipate undue ongoing financial pressures arising from the dissolution of the city's redevelopment agency (RDA) as a consequence of state-wide legislation. The non-spendable portion of the city's general fund balance includes a long-term receivable from the RDA, equal to $7.8 million at the conclusion of fiscal 2011 as well as a $5.9 million land asset transfer from the RDA. The state has disallowed an annual $800 thousand repayment from the RDA towards the receivable, although the city believes that a recent trailer to the state budget will improve the likelihood of a future approval. The city prudently does not incorporate any portion of the repayment in its operating budget. Additionally, the city states that there is a question if the transfer will ultimately be allowed. Fitch notes that any disallowances regarding the annual repayment and land transfer affects the non-spendable portion of the fund balance, which Fitch does not view as providing financial flexibility to the issuer. The state has disallowed an annual $450 thousand administrative overhead allocation from the RDA to the city. The city reports that it has absorbed this loss in its general fund operating budget. Fitch anticipates that the city can accommodate the lost revenue without materially altering the credit profile, assuming all other credit factors remain constant. BROAD REGIONAL EMPLOYMENT OPPORTUNITIES, NARROW LOCAL COMMERCIAL BASE The city is located 14 miles south of Oakland and benefits from its participation in the San Francisco Bay's diverse employment opportunities. The city's own employment base is somewhat narrow. Large city employers include government, California State University-East Bay, and Kaiser Permanente. Other large employers include mid-size manufacturing firms, with bio-science firms somewhat offsetting the substantial presence of traditional manufacturers. The city has shared in the economic downturn that affected the Bay area since the recession, although signs of stabilization are emerging. Declines in both housing prices and assessed value appear to be moderating. The May 2012 10.1% unemployment rate declined 10.6% on a year-over-year basis. Unemployment remains well above the national 7.9% rate, although Fitch notes positively that the annual decrease exceeded that of the nation. Wealth indicators are below that of the wealthy region and mixed relative to the nation. LIMITED DEBT PRESSURES Overall debt ratios are moderately low at $3,577 per capita and 3.3% of market value, driven mainly by county and school debt. Amortization is rapid with 66% of principal retired within 10 years. COPs and general fund debt service requirements equal a low 2.3% of the combined spending of the COPs debt service and general funds, a level that Fitch believes does not pressure the credit. The city's fiscal 2013-2022 capital improvement plan totals $356.7 million, including $170 million for projects for the self-supporting enterprise funds. The city is considering a minimal debt issuance for a fire station. Rising pension costs have the potential to pressure the credit, although the city has included projected payment escalations in its budget forecast. Substantially all city employees participate in the California Public Employees' Retirement System (CalPERS). Fiscal 2011 city contributions equalled 13% of general fund spending, a level that Fitch believes can narrow financial flexibility. Recently negotiated labor concessions include employees assuming their full contribution cost as well as a portion of the city's retirement contribution. Nevertheless, the city projects that its pension costs will increase by $1.3 million in fiscal 2013, partly attributable to CalPERS' lowering the discount rate. Fitch notes positively that the city has elected to assume the increase in one fiscal year, rather than opt to phase-in the increase over two years. The OPEB ARC equals a moderate 5.2% of general fund spending. In fiscal 2011, the city began to contribute to full funding of the ARC. The city has incorporated full ARC funding by fiscal 2019 into its budget. In addition, the city has implemented a two-tier benefit for police employees to help cap ARC growth. AVERAGE LEASE STRUCTURE The city has covenanted to budget and appropriate lease rental payments for the use of the civic center, home to the city's primary municipal function and city council chambers. The city may substitute other property for the leased civic center, although the substituted property must have comparable appraised value, essentiality, and useful life. The lease requires the city to provide rental interruption insurance equal to at least the maximum payment payable in any two consecutive fiscal years in the remaining term of the lease. Lease payments would be abated proportionately during any period where there is substantial interference with the city's use and occupancy of the property, although not if insurance proceeds or reserve fund amounts are available to pay the lease. The city waives its right to terminate the lease in the event of damage or destruction. 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, and the National Association of Realtors. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 15, 2011); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria
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SYDNEY, Sept 26 Australian industry compliance company SAI Global Ltd said it will recommend a A$1 billion ($761.10 million) takeover from Hong Kong-based Baring Asia Private Equity, two years after KKR & Co LP and a local buyout firm scrapped a higher offer.