PRESS RELEASE: Moody's Assigns Aa2 Rating To -2-

16th Jul 2010 22:06

it threatened to drive the fund's capital below $2 billion. This proposal, if approved, could replace the need for debt issuance to support state projects, while not fully depleting the trust fund's capital. GULF OIL SPILL THREATENS ALABAMA'S COAST Alabama's coastal area, which includes the City of Mobile (Aa2), remains vulnerable to the environmental and economic impact of the Gulf of Mexico oil leak that began with the explosion of an oil rig 50 miles off the Louisiana (Aa2, stable outlook) coast on April 20. Alabama's most at-risk credits, in addition to the City of Mobile, are Mobile and Baldwin counties (Aa2 and Aa1, respectively). The fishing and tourism industries on the state's coast clearly will suffer, but Moody's believes the economic impact state-wide will be manageable. BP Plc. (A2, on review for downgrade) has advanced substantial funds to affected states and has agreed to create a $20 billion escrow fund to pay claims resulting from the disaster. Moreover, the company has recently reported success in capping the well, at least temporarily. ECONOMY RETAINS STRONG GROWTH OPPORTUNITIES Alabama began to outpace the U.S. in job creation in 2003. This economic trend, which in part reflected the state's success in luring foreign manufacturers such as Hyundai Motor Co. (Baa3, stable outlook), persisted through 2007. Notably, the trend reversed a long period in which Alabama lagged the nation. Amid the recession of the past two years, Alabama has slipped back to a job-creation pace in line with the nation. The state's unemployment rate, below the U.S. level in recent years, is now slightly higher, at 10.8% in May versus the nation's 9.7%. Despite these set-backs, the state's potential for long-range job and wealth creation remains strong, in Moody's view. Sources of opportunity include the construction of a carbon and stainless steel manufacturing complex near Mobile by Germany's ThyssenKrupp AG (Baa3, negative outlook). This steel plant is expected to be responsible for 2,700 new jobs in the state as of next year. The relocation of certain federal military operations to the City of Huntsville (Aaa) area will also be an even more important source of jobs, creating an estimated 5,300 direct and contractor or support positions by next year. MODERATE STATE DEBT BURDEN HAS BEEN CREDIT STRENGTH Alabama has been a low- to moderate-debt state, reflecting a conservative financial approach. All G.O. borrowings require passage of constitutional amendments (subject to a three-fifths majority in legislature, followed by approval in a popular vote). The state has increased its relative debt burden for economic development and other purposes, most notably with a $1 billion borrowing through its Public School and College Authority in December of 2007. Alabama's relative debt burden ranked 30th among states on a per-capita basis and 27th as a share of state personal income in Moody's 2010 State Debt Medians report. The state ranked 25th in both categories in 2008. Pensions are somewhat weak, with an aggregate funded ratio (assets to liabilities) of 77% as of 2008. The state faces a more significant challenge in meeting its liability for retiree health benefits (also known as other post-employment benefits, or OPEB). The liability is currently valued at almost $17 billion. The actuarially determined amount needed to amortize the liability over 30 years and to provide for benefits as they are accrued is $1.2 billion. This amount is very large in relation to Alabama's approximately $6.7 billion operating budget, although the state is not legally required to contribute the full actuarially determined amount. Alabama in the past has devised and implemented strategies to reduce its OPEB liability, and Moody's expects these efforts will continue. Most recently, the State Employees' Health Insurance Board implemented health test program to identify participants with blood pressure, cholesterol, blood-sugar or weight problems. This program, designed to contain future healthcare costs related to chronic conditions by providing incentives for screening and treatment, has attracted a 95% participation so far. OUTLOOK: The outlook for the State of Alabama is stable, based on expectations the state will continue to exercise conservative financial management as mandated by its statutory and constitutional provisions. What could move the rating up: -Sustained trend of private-sector job creation meeting or exceeding national pace -Increasing per-capita personal income levels, improving relative to the national level -Adoption of best-practices financial management techniques, such as government-wide debt analyses and binding consensus revenue forecasting What could move the rating down: -Failure to budget for both replacement of federal ARRA funds and rebuilding of budgetary reserve levels - Continuing revenue shortfalls versus budgeted levels -Reliance on other non-recurring sources for operating purposes -Intensifying fiscal stress from liability for retiree health benefits -Return to below-average economic performance PRINCIPAL METHODOLOGY AND LAST RATING The principal methodology used in assigning the rating to Alabama Building Renovation Finance Authority's Series 2010 bonds was Moody's State Rating Methodology, published in November 2004 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. The most recent rating action with respect to the State of Alabama was on May 4, 2010, when ratings of Aa1 with a stable outlook were assigned to the state's General Obligation Refunding Bonds Series 2010C and its General Obligation Capital Improvement Bonds, Series 2010D. ANALYSTS: Edward Hampton, Analyst, Public Finance Group, Moody's Investors Service Edith Behr, Backup Analyst, Public Finance Group, Moody's Investors Service CONTACTS: Journalists: (212) 553-0376 Research Clients: (212) 553-1653 Copyright 2010 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources; however, MOODY'S does not and cannot in every instance independently verify, audit or validate information received in the rating process. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. (MORE TO FOLLOW) Dow Jones Newswires July 16, 2010 17:06 ET (21:06 GMT)