Fitch Ratings assigns an 'AA-' to the following --
The bonds are expected to sell via negotiation the week of
In addition, Fitch affirms the 'AA-' rating for the following outstanding debt:
The Rating Outlook is Stable.
The bonds are secured by a senior lien pledge of the net revenues of the county's water and sewer system, including available system connection charges. The series 2014 bonds will not carry a debt service reserve.
KEY RATING DRIVERS
STRONG FINANCIAL METRICS: Debt service coverage (DSC) and liquidity remain near or exceed rating category medians despite a drop in each metric in fiscal 2012. Strong cash flow trends will continue with rate increases approved through fiscal 2015. Fitch expects liquidity will decline but remain solid as increased pay-go capital funding trends continue.
AVERAGE DEBT BURDEN: System leverage is manageable and expected to rise minimally over the five-year capital planning horizon, resulting mainly from lower future borrowing plans than previously anticipated.
STABLE OPERATIONS: The utility is comprised of six separate and self-contained service areas. The overall operating profile is stable. However, the large and somewhat isolated geographic make-up has led to a dispersed asset base with dozens of small treatment facilities with higher delivery costs and limited system redundancy.
MANAGEABLE CAPITAL PLAN: The capital improvement plan (CIP) includes a comprehensive renewal and replacement program as well as addresses some water system consolidation efforts in the northeast regional service area.
HIGH RATES REDUCE FLEXIBILITY: The average residential bill for combined service is a high 2.9 percent of median household income (MHI) and above average relative to neighboring utilities. The county has raised rates incrementally, although Fitch is concerned future increases may become more difficult to implement due to affordability concerns.
STABLE BUT LIMITED ECONOMY: Historically known for its citrus and phosphate mining industries, the county's economy has diversified into healthcare, light manufacturing and distribution. The unemployment rate has declined, but income levels remain below average.
STRONG FINANCIAL PERFORMANCE, MANAGEABLE LEVERAGE: The county's decision to increase pay-go capital funding will keep the system's debt burden manageable while lowering pressures on pro forma finances and rates. If the system's debt profile remains average and financial performance strong, upward rating movement is possible.
CENTRAL LOCATION WITH ACCESS TO INTERSTATE
SYSTEM COVERS A LARGE SERVICE AREA
The system provides utility services to a predominantly residential customer base of roughly 59,200 water and 42,400 sewer customers (not including about 4,400 reclaimed water customers) throughout
STABLE OPERATING PROFILE, SOLID INFRASTRUCTURE AND WATER SUPPLY
The water system consists of groundwater supply from the Floridan Aquifer, numerous small water treatment facilities and distribution assets. Water supply is generally good, requiring minimal treatment. Groundwater wells are permitted through the
For the long term, the county is leading efforts to develop an additional supply source known as the Southeast Well Field to be shared with other municipal utilities in central
The sewer system also serves customers through the six regional service areas. There are a total of eight sewer treatment plants, each of which has sufficient uncommitted capacity as measured by the average flow for each plant versus the designed treatment capacity. Three of the plants provide highly treated reclaimed water, which is provided for public access reuse or sold to reclaimed water customers. Any remaining or excess reclaimed water is discharged into rapid infiltration basins. All sewer treatment plants are operating under current discharge permits issued by the state department of environmental protection.
SOLID FINANCIAL METRICS, STRONG RESULTS TO CONTINUE
Financial performance has been solid historically with a combination of steady rate increases and customer growth leading to increased operating revenues and the collection of substantial system connection charges. Although connection fees began to drop in fiscal 2009, the system still generated strong DSC in that year and in subsequent years of more than 2.0x including connection fees and no less than 1.8x when these fees were excluded.
A rise in operating costs outpaced revenue growth in fiscal 2012, leading to DSC of approximately 2.1x from all revenues and 1.8x excluding connection fees, which is still considered high for the rating. The system makes scheduled annual payments in lieu of taxes (PILOTs) to the county's general fund (GF), which totaled about
Pro forma financial results provided by the county's utility rate consultant show the trend in strong DSC continuing through fiscal 2016 before a rise in debt service in fiscal 2017 drops coverage to about 1.8x from all revenues, and 1.6x excluding connection fees. The projections appear reasonable and include conservative assumptions such as the approved rate increases for 2014 and 2015 but no further increases, annual increases in labor costs and indirect cost allocations to the GF, and a rise in debt service from a proposed 2016 issuance.
Liquidity remains very strong despite a decline in cash from fiscal 2010 to fiscal 2012. As of fiscal 2012, the system had over
Cash is projected to decline with the county's decision to pay more of the CIP from internal sources. However, the county projects to continue to maintain significant free cash flow (which has been over 100 percent of depreciation over the past five years) of more than
AVERAGE DEBT BURDEN, LIMITED ADDITIONAL BORROWING EXPECTED
The system's debt burden is manageable and most debt ratios track below the medians for 'AA' rated systems. As of fiscal 2012, outstanding debt totaled a reasonable 35 percent of net capital assets and
2014 bond proceeds will be used to refund nearly all of the outstanding series 2004A and 2004B bonds for net present value savings. Since the 2004B's are not currently eligible for advanced refunding the 2014B's will be issued as federally taxable bonds. To complete the refunding, the county plans to sell 2014C bonds in a direct purchase transaction with Citibank (with a par of approximately
After this issuance, the system will have approximately
The average monthly residential customer bill for combined service is roughly
Fitch expects additional increases may be necessary to fund ongoing capital needs and new water supply projects over the intermediate and longer term. While the size and scope of future rate needs is still unknown the county's ability to pass future rate increases will be an important rating consideration.
((Comments on this story may be sent to firstname.lastname@example.org))
Fitch Ratings assigns an 'AA-' to the following