New Issue: Moody's assigns A3 to City of Lorain, OH's $5.

9M GOLT Bonds,
Series 2014
Global Credit Research - 14 May 2014
A3 affirmed on $55.3 million post-sale GOLT debt
LORAIN (CITY OF) OH
Cities (including Towns, Villages and Townships)
OH
Moody's Rating
ISSUE RATING
General Obligation Street Improvement Bonds, Series 2014 A3
Sale Amount $5,880,000
Expected Sale Date 05/21/14
Rating Description General Obligation Limited Tax

Moody's Outlook NOO

Opinion
NEW YORK, May 14, 2014 --Moody's Investors Service has assigned an A3 rating to the City of Lorain's (OH)
$5.9 million General Obligation Limited Tax (GOLT) Street Improvement Bonds, Series 2014. Debt service on the
bonds is secured by the city's general obligation limited tax pledge, subject to the State of Ohio's (Aa1 stable) 10
mill limitation. Concurrently, we affirmed the A3 rating on the city's outstanding GOLT debt. Proceeds from the
bonds will finance street repair and improvements throughout the city. Post-sale, the city will have $55.3 million in
long-term GOLT debt outstanding.
SUMMARY RATINGS RATIONALE
The A3 rating reflects the city's moderately sized tax base with below average income levels which is still suffering
from the effects of the economic downturn; income tax payer and employment concentration; sustained
operational imbalance with maintenance of satisfactory reserves following utilization of one-time revenue sources
to close recent and projected budget gaps; and above average debt burden and pension exposure.
STRENGTHS
- Satisfactory operating reserves in the city's General and Police funds
- Passage of income tax levy renewal
CHALLENGES
- Income tax payer and employer concentration
- Below average resident income levels
- Consistent and expected use of one-time revenues to close budget gaps
- Reliance on economically sensitive income tax revenues
DETAILED CREDIT DISCUSSION
FINANCES PRESSURED AS OUTYEAR BUDGET GAPS REMAIN; RECENTLY REMOVED FROM FISCAL
WATCH
The city's financial operations are expected to remain pressured over the next two to three years as management
continues to project structural budget gaps. The city was removed from Fiscal Watch status by the Auditor of the
State of Ohio (Aa1 stable) in October 2013 because they were able to forecast positive yearend General Fund
cash positions for fiscals 2013 through 2015. Despite being removed from Fiscal Watch, the city is still facing
structural imbalances that could materially reduce already limited reserve levels. In fiscal 2012, the city faced
revenue losses in state aid of approximately $1 million, as well as the loss of revenues from an income tax credit
reduction override. To balance operations, the city appropriated its operating surplus from fiscal 2011 to cover the
revenue losses in fiscal 2012. The city closed fiscal 2012 with $4 million in available GAAP basis General Fund
balances, which is equivalent to a satisfactory 14% of revenues, and $1.5 million in reserves in the Police Levy
Fund. On a budgetary cash basis, the city had $1.4 million in reserves in the General Fund.
Preliminary estimates for fiscal 2013 point to a reduction in overall fund balance to $1.0 million on a budgetary cash
basis. This is despite the city's passage of a permanent 0.5% income tax rate increase approved by voters in
November 2012, with 0.25% dedicated for streets and 0.25% for general purposes. The city maintains an income
tax rate of 2.5%, of which 2.25% is continuous and 0.25% was recently renewed for an additional five years. Of
this rate, 1.75% is continuous and dedicated for general purposes, 0.25% is temporary for general purposes,
0.25% is continuous for street improvements and 0.25% is continuous for public safety. The city would not have
been able to achieve near balanced operations without this rate increase and the city's receipt of the first of two
$1.2 million settlements resulting from a lawsuit. The city received the first of these funds in December of 2013
which enabled the city to close a significant portion of the budget gap. The budget gap was driven due to lost
property and estate tax revenues, declining Local Government Fund (LGF) revenues from the state and an
$800,000 negative variance in income tax collections due to the delayed hiring of 450 employees by Republic
Steel.
In fiscal 2014, the city received the second and final payment of $1.2 million and reports that based on year to date
revenue and expenditure trends, that overall General Fund reserves will improve to $1.3 million on a budgetary
cash basis. Management notes that without this settlement revenue, fiscal 2014 would have seen another
structural budget gap which could have adversely impacted the reserve position. Looking forward to fiscal 2015,
city officials expect another budget gap of roughly $1 million. Management is currently in the preliminary stages of
identifying gap closure measures. While the city has been able to maintain its reserve position in recent years, the
use of one-time revenue enhancements and the persistent structural gaps puts the city's narrow financial reserves
at risk. Closure of fiscal year 2014 below expectations would likely impair the city's financial position and put
pressure on the credit rating.
CITY'S MANUFACTURING DOMINANT EMPLOYMENT BASE STILL FACING SIGNIFICANT CHALLENGES;
HIGH LEVELS OF INCOME TAX PAYER CONCENTRATION
The city's moderately sized $2.3 billion tax base, located in northeastern Ohio, has exhibited steady average
annual declines of 4.1% over the last five years. This includes a 13% reduction in valuations during the city's
sexennial update which reflects declines in residential and commercial valuations from the downturn. The city's
unemployment rate remained high at 11.2% as of January 2014 and labor market weakness continues to reflect
the 2005 closure of a Ford Motor Company (Baa3 stable) manufacturing facility and other job losses at Republic
Engineered Products and Lorain Tubular (parent company U.S. Steel Corporation Ba3 stable), two local steel
manufacturing facilities. The city also exhibits high levels of income tax payer concentration with the top ten
taxpayers comprise approximately 25% of annual collections. Lorain Tubular (726 employees) began a $93 million
upgrade of its facility in 2011, adding an additional 90 permanent jobs and 150 temporary construction jobs.
Republic Steel completed construction of a new $85 million new electric arc furnace in 2013. While initial
expectations were that Republic would add 449 new jobs and bring the company's workforce back close to its
2008 numbers of 1,100, challenges at the plant have delayed hiring. Investment at the two plants is attributed to
steel required for the growing oil and gas presence in Ohio due to the Utica and Marcellus Shale deposits in
eastern Ohio, and a rebounding auto industry.
City officials have worked to retain and attract employers by creating urban renewal zones, maintaining
investments in infrastructure and providing income and property tax abatements. Industrial Realty Group (IRG)
acquired the former Ford facility in 2006 and has refurbished portions of it, attracting several distribution and
warehouse companies to the site. The company recently purchased a closed National Gypsum plant, which it
intends to market for refurbishment. The city is renewing focus on development of its lakefront by removing
transmission lines. Positively, the city's top two employers, Mercy and Lorain City School District, have been
relatively stable entities. Mercy, a regional health center with 1,704 employees, embarked on a $20 million capital
improvement plan in 2010. Median family income is estimated at 65% of the national figure. We expect the city's
local economy to remain challenged given the concentration in the steel industry and manufacturing given the
current economic climate.
ABOVE AVERAGE DEBT BURDEN WITH POTENTIAL ADDITIONAL BORROWING PLANS
We anticipate that the city's overall debt burden of 4.8% of full value (2.9% direct) will remain above average given
its below average principal amortization rate of 64% and plans for future borrowing. The city funds approximately
half of its outstanding obligations from non-property tax revenue sources including income tax, special
assessments, tax increment, and utility revenues, which reduces the burden on property taxpayers. In addition to
the current offering, the city will leverage its recently passed street improvement levy to borrow an additional $8
million from the state for street improvement purposes. Net of refunding transactions, debt service expenditures
comprised a manageable 15% of operating expenditures in fiscal 2012.
The city has outstanding $8.7 million in GOLT bonds for development of the Harborwalk multi-use development on
the Black River downtown. The city has an agreement with the developer, Spitzer Great Lakes that Spitzer will
make up a shortfall in the difference between debt service payments and urban renewal revenues received. The
urban renewal revenues are collected from the 140 houses that were constructed in the development out of a
planned 478. To date, the developer has paid the short fall in urban renewal revenues in order to cover debt
service requirements. For fiscal 2013, the shortfall was $355,000 and Spitzer has continued to honor its
agreement. Should the developer fail to make the payment, city officials report that the city currently has sufficient
reserves in the Bond Retirement Fund that could cover the payment in fiscal 2014. The bonds have annual debt
service of approximately $680,000. One series matures in 2028 and the other in 2032. All of the city's outstanding
debt is fixed rate, and the city is not a party to any interest rate swap agreements.
EXPOSURE TO AN UNDERFUNDED COST-SHARING PENSION PLAN POSES SOME LONG-TERM RISK
The city's fiscal 2012 adjusted net pension liability (ANPL) is $130.4 million, equivalent to a high 4.0 times
operating revenue and 5.8% of full valuation. The ANPL is based upon an allocation of the unfunded liabilities of
two multi-employer cost-sharing pension plans to which the city contributes, net of enterprise contributions, as well
as our methodology for adjusting reported pension information. City employees are members of the Ohio Public
Employees Retirement System (OPERS) and Ohio Police and Fire (OP&F) pension plan, and the city's fiscal
2012 contribution to the two plans was $4.3 million or 13% of operating revenue. We allocated the reported
unfunded liabilities of the plans to the city's based on its share of total public employer contributions. Because
2013 valuations are not yet available for OPERS and OP&F, the current ANPL does not incorporate reforms that
were enacted by the state in 2012 for all cost-sharing plans to control annual cost-of-living adjustments for retirees
and to increase employee plan contributions.
What could change the rating - UP:
- Expansion and diversification of tax base along with continued creation of new employment opportunities
- Significant increase of financial reserves to levels sufficient to offset the city's reliance on economically-sensitive
income tax receipts
What could change the rating - DOWN:
- Negative variances in fiscal 2014 and inability to close out-year budget gaps
- Deterioration in employment base or development activity
- Continued non-performance of development projects that lead to deterioration of developer agreements and
ultimately require the city to cover debt service to avoid default
KEY STATISTICS
2014 Full value: $2.3 billion
2014 Estimated full value per capita: $35,153
2008-2012 Median family income (as a % of US): 65%
Fiscal 2012 Available Operating (General + Debt + Police Levy) Fund Balance: 16.7% of revenues
Fiscal 2007 to Fiscal 2012 Change in Available Operating Fund Balance as a % of revenues: 14.9%
Fiscal 2012 Operating Fund Cash Balance: 11.6% of revenues
Fiscal 2007 to Fiscal 2012 Change in Operating Fund Cash Balance as a % of revenues: 8.4%
Fiscal 2007 to Fiscal 2012 Average Operating Revenues / Operating Expenditures: 1.01 times
Institutional Framework: A
Net Direct Debt / Full Value: 2.9%
Net Direct Debt / Operating Revenues: 2.0 times
3-year average of Moody's ANPL / Full Value: 4.4%
3-year average of Moody's ANPL / Operating Revenues: 3.0 times
RATING METHODOLOGY
The principal methodology used in this rating was US Local Government General Obligation Debt published in
January 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory
disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class
of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance
with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating
action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for
the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating
outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for
each credit rating.
Analysts
Chandra Ghosal
Lead Analyst
Public Finance Group
Moody's Investors Service
Matthew Wieser
Backup Analyst
Public Finance Group
Moody's Investors Service
Matthew Butler
Additional Contact
Public Finance Group
Moody's Investors Service
Contacts
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and
affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE
MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH
PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'S
CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS,
OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S 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 AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO
INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR
COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S
PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND
CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE
RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT
RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR
ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S
PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH
DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER
CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL
INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY'S CREDIT
RATINGS OR MOODY'S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU
SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

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 sources MOODY'S considers to be
reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and
cannot in every instance independently verify or validate information received in the rating process or in preparing
the Moodys Publications.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors
and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or
damages whatsoever arising from or in connection with the information contained herein or the use of or inability to
use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives,
licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited
to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial
instrument is not the subject of a particular credit rating assigned by MOODYS.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors
and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity,
including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability
that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the
control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,
arising from or in connection with the information contained herein or the use of or inability to use any such
information.

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.

MIS, a wholly-owned credit rating agency subsidiary of Moodys Corporation ("MCO"), hereby discloses that most
issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and
preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating
services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies
and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain
affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from
MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually
at www.moodys.com under the heading "Shareholder Relations Corporate Governance Director and
Shareholder Affiliation Policy."

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services
License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or
Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended
to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By
continuing to access this document from within Australia, you represent to MOODY'S that you are, or are
accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you
represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of
section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a
debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to
retail clients. It would be dangerous for "retail clients" to make any investment decision based on MOODY'S credit
rating. If in doubt you should contact your financial or other professional adviser.