Guilford County, N.C., downgraded to AA-plus by Fitch

Fitch Ratings downgraded Guilford County, North Carolina’s issuer default rating and general obligation debt to AA-plus from AAA on Friday afternoon, reflecting a material increase in its debt load and “midrange” demographic and economic developments.

Simultaneously, Fitch downgraded the county’s lease obligations to AA from AA-plus. The outlook is stable.

The county had $673 million in outstanding debt in 2023 according to Moody’s Ratings and $766 million in debt in the same year according to S&P Global Ratings.

Fitch’s action stems from its application of new local government rating criteria, which it announced in April.

The rating incorporates the planned issuance of $300 million this fall but not the remaining $1.7 billion of authorized but unissued bonds “given the uncertain timing of this issuance combined with the rapid amortization of currently outstanding debt and the potential for growth in personal income and governmental revenues,” Fitch said.

The county’s moderate population growth is offset by weak median household income levels and “slightly above-average” unemployment, Fitch said.

The county has ample budgetary flexibility supported by unrestricted reserve levels at 28% of fiscal year end 2023 levels.

In its January report on the county, Moody’s pointed to similar factors for its Aaa GO rating. It noted, in May 2022 voters approved a $1.7 billion bond referendum for school construction in the county. “The additional debt is expected to be layered in over a period of years starting in 2025. While the amount of debt is significant, the long-term liabilities ratio is expected to increase modestly from about 170% of revenues to a manageable 230% in 2027.”

Debt service is expected to rise from about $75 million in fiscal 2023 to about $225 million in 2032 and then slowly roll off from that, according to Moody’s.

In its January report, S&P also pointed to similar factors to explain its AAA rating for the county’s GO bonds. Additionally, it said the county’s property assessed value grew by 54% in the last decade and is continuing to grow. The general fund’s primary sources of income in fiscal 2023 were 63% from property tax, 16% from sales tax, and 13% from intergovernmental funds (primarily state contributions for education expenses), according to S&P.

Guilford County government didn’t immediately respond to a request for a comment on Fitch’s action.