Lucas, TX 2019 Certificates Of Obligation Assigned 'AA+' Rating

NEW YORK (S&P Global Ratings) July 26, 2019--S&P Global Ratings assigned its 'AA+' long-term rating to Lucas, Texas' series 2019 combination tax and limited pledge revenue certificates of obligation. At the same time, S&P Global Ratings affirmed its 'AA+' long-term rating on the city's general obligation (GO) debt outstanding. The outlook is stable.
"Lucas' rapid economic expansion and parallel evolution of the management policies and practices support the rating," said S&P Global Ratings credit analyst Kaiti Vartholomaios. The city is bolstering its robust reserve position and spending down in a controlled manner to accommodate the local growth, which we expect to continue. The rating is constrained by the high debt levels and lack of long-term financial planning.
The certificates are payable from revenue from a direct and continuing ad valorem tax levied, within the limits prescribed by law, on all taxable property within the city, and surplus net revenue of its combined utility system, not to exceed $1,000. Given the limited nature of the revenue pledge, we rate the certificates based on the city's GO pledge.
Lucas' GO bonds and certificates of obligation constitute direct obligations of the city, payable from the proceeds of a continuing, direct annual ad valorem tax, within the limits prescribed by law, on all taxable property within its borders. Many of the city's certificates of obligation are further payable from a limited amount of the net revenue derived from the operation of the utility system. We view Lucas' GO pledge as the stronger security and our rating reflects this. Proceeds from the certificates will fund several infrastructure improvements, including road expansions and waterline looping.
"The stable outlook reflects our expectation that Lucas will continue to benefit from its participation in the Dallas-Fort Worth-Arlington Metroplex, further supporting its very strong economic metrics," added Ms. Vartholomaios, "and we anticipate that it will sustain very strong budgetary performance and flexibility, due to management's ability to adapt to the city's growth needs." Consequently, we don't anticipate changing the rating within the two-year outlook horizon.
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