Fitch Ratings has affirmed the following --Approximately
The Rating Outlook is Stable.
Bond repayment is secured by installment payments paid to the JPFA from the city, in accordance with an installment purchase agreement between the city and the JPFA. The obligation of the city to make installment payments is secured by a pledge of net revenues of the city's wastewater system (the system); such obligation is absolute and unconditional and is not subject to appropriation.
KEY RATING DRIVERS
SOUND FINANCIAL PERFORMANCE: The system has performed well over the past five years, with all-in annual debt service (ADS) coverage ranging from 1.8x - 2.7x over this period. Liquidity, measured by days of operational cash, has been exceptionally strong, finishing fiscal 2013 at 812 days. However, ADS coverage has dropped and is expected to continue to decline over the next few years.
RATE INCREASES NEEDED: Rate increases will be needed to ensure ADS coverage remains adequate as debt service costs have risen as a result of the 2012 issuance. Rates have been held flat the last few years until a 4 percent increase was implemented in 2013.
CONSTRAINED WASTEWATER CAPACITY: The city's wastewater system capacity is constrained by a discharge pipeline. The city is making additional improvement to its recycled water treatment and distribution system to reduce its wastewater discharge.
MIXED SERVICE AREA: The service area has seen strong improvements in unemployment rates since 2010 but individual poverty rates are increasingly high and income levels are well below state and national averages. The system's service area has some industry concentration with a large power producer accounting for an outsized portion of system revenues.
CONTINUED STABILITY: Failure to maintain financial and debt metrics near current levels could put downward pressure on the rating. To maintain system metrics, future increases in user rates will be necessary given recent increases in debt service costs.
The system provides retail wastewater service to approximately 27,700 customers in the city, which is located approximately 30 miles northeast of
DECLINING COVERAGE, STRONG LIQUIDITY
The system's otherwise healthy financial performance has begun to decline primarily due to the rising costs of debt service associated with the series 2012 wastewater revenue bonds. All-in ADS coverage in fiscal 2013 finished at 1.8x, down versus the previous four years but in line with Fitch's 'AA' median. However, forecasts provided by management, which include assumed rate hikes of 4 percent over the next few years, project coverage to drop to 1.3x in 2014 before rebounding to 1.6x in subsequent years. In order to not pressure the rating at its current level, Fitch would expect future projections to continue to demonstrate a somewhat swift rebound in ADS coverage.
Liquidity, measured by days of operational cash held in unrestricted reserves, finished fiscal 2013 at an exceptional 812 days. In Fitch's view this will help to mitigate some of the projected declines in ADS coverage should they manifest.
RATES ARE HIGH AND RISING
The average residential water customer pays about
MANAGEABLE CAPITAL NEEDS, ELEVATED DEBT BURDEN
The five-year capital improvement program totals a manageable
MIXED SERVICE AREA
The city's unemployment rate improved to 7.3 percent in
Additional information is available at 'fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
--'Revenue-Supported Rating Criteria' (
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'2014 Water and Sewer Medians' (
--'2014 Outlook: Water and Sewer Sector' (
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
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Fitch Ratings has affirmed the following