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3/52015 Fitch Ratings I Press Release maintain the same rating on the lease revenue bonds and the implied ULTGO RATING SENSITIVITIES CONTINUED STRONG FINANCIAL POSITION: The city's continued high rating is contingent upon the maintenance of strong reserve levels. Fitch expects this trend to continue given managements history of prudent financial and budgeting practices. CREDIT PROFILE South Bend is the fourth largest city in Indiana, located in the north central part of the state, approximately five miles south of the Michigan border and 90 miles east of Chicago. The University of Notre Dame is adjacentto the city.After decreasing 6.1%from 2000 to 2010, population has stabilized, totaling 100,886 in 2013. SOLID RESERVE LEVELS MAINTAINED Since the implementation of the circuit breaker legislation in 2007,which limits property taxes to a percentage of gross assessed value, city management has proactively reduced expenditures and increased local option income taxes to partially offsetthe decline in property tax revenues. This increased reliance on economically sensitive income taxes subjects the city to some revenue volatility. For 2013 (year-end Dec. 31), the city recorded an operating deficit aftertransfers of$1.1 million (1.6% of spending). Reserve levels remained solid,with an unrestricted general fund balance equivalent to 36.9% of spending.Additionally,the city maintains a rainy day fund, outside the general fund. The 2013 balance was $8.6 million, equivalent to a healthy 11.7% of general fund spending. The fund would only be accessed if no other options are available, and is unlikely to ever be spent. For 2014, the city's estimates indicate a small cash-basis general fund operating surplus and a small increase in fund balance. The 2015 budget is balanced with no use of fund balance. Positively, management has a cash reserve policy in place for certain funds to serve as fiscal protection against the risk of revenue shortfalls, emergencies, and unstable property tax collections.As of Jan. 31, 2015,the general fund cash reserve totaled 46% of expenditures compared to a policy of 25%. Fitch expects the city to continue to maintain budgetary balance and strong reserves. ECONOMY BOLSTERED BY UNIVERSITY PRESENCE Manufacturing is still a major component of the area economy butthe city also has strong service-based sectors with the University of Notre Dame,which is adjacentto the city, providing stability as the largest employer (approximately 5,590 employees). Other major employers include Beacon Health System (3,450), South Bend Community School Corporation (2,880)and AM General (2,658). Increased economic activity due to the recovering economy was evidenced in 2014 as the city reported lower unemployment rates and growth in employment and laborforce numbers. The December 2014 unemployment rate of 7.4%was down from 8.6% a year earlier, but still above the state (5.8%) and nation (5.4%). Employment and labor force growth over the same time period were 2.7% and 1.4%, respectively, below very strong state increases but higherthan U.S. growth rates. City income levels are below average,with per capita income 78% of the state and 68% of the national average. Poverty levels are almost double those of the state and nation. Low income levels are likely reflective, in part, of a large student population. Taxable assessed valuation, about$2.2 billion, improved slightly for 2015, after declining almost 10%from 2010 to 2014. The tax base is moderately concentrated with the top 10 taxpayers including a mix of utilities, manufacturing and retail, comprising 14.1% of taxable value. Current property tax collections are satisfactory, averaging 94.4% overthe lastthree years,total collections are stronger averaging 99%. MANAGEABLE DEBT PROFILE Overall debt ratios are moderate at$2,206 per capita and 4.6% full value and should remain stable as the city has modest debt issuance plans and amortization is above-average. https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?print=1&pr_id=980802 2/4