The Rating Outlook is Stable.
The bonds are secured by a first lien pledge of the net revenues of the county's water and sewer system.
KEY RATING DRIVERS
LARGE REGIONAL SERVICE PROVIDER: The customer base is stable and mostly residential. The county also serves numerous wholesale customers (mostly sewer) via long-term service agreements. The agreements are substantially similar and in place at least until one year beyond the maturity of all of the system's bonds associated with the regional sewer plant.
SOLID ECONOMIC BASE: The service area is mature and the broader economy is deep and diverse. Recent employment growth and a stabilizing tax base are positive developments.
STABLE FINANCIAL PROFILE: The system's financial performance remains stable with debt service coverage (DSC) of between 1.6x - 1.7x for the past three years. Affordable rates and improved liquidity provide financial flexibility.
AVAILABLE SYSTEM CAPACITY: The system retains substantial treatment capacity and is well maintained. Management has consistently invested in the system with capital spending at roughly 150% of depreciation (on average) over the past five years.
MIXED DEBT METRICS: The system's debt ratios are somewhat mixed with high debt-to-net plant and rising carrying charges. However, Fitch notes that higher debt ratios are not unusual for utility systems that provide wholesale service.
LARGE CAPITAL PROGRAM: A sizable capital program includes additional bonding, but Fitch projects debt ratios will remain manageable over the near term. Recent legislative changes concerning use of ocean outfall for effluent discharge is favorable and expected to significantly lower longer-term capital costs.
STABLE AND FLEXIBLE FINANCES SUPPORTS RATINGS: Pro forma DSC is somewhat low but acceptable given the system's strong financial and rate flexibility. Significant deviation from stable performance and/or diminished flexibility could pressure the rating.
RISING LONG-TERM DEBT BURDEN: An appreciable rise in the system's debt burden could also pressure the rating.
WHOLESALE AND RETAIL SERVICE PROVIDED TO STABLE CUSTOMER BASE
The county operates a combined water and sewer utility system. The water system serves approximately 57,000 mostly residential connections, and one wholesale user, the city of
Wholesale wastewater users accounted for a somewhat concentrated 26% of gross system revenues in fiscal 2012. However, all of the wholesale customers are signed to substantially similar long-term agreements, and Fitch views the likelihood that one or more wholesale customer develops its own treatment facilities to be remote given the high capital costs and regulatory requirements associated with constructing and operating such facilities. The agreements prudently extend one year beyond the last debt service payment related to the regional plant, which Fitch believes adds stability to the overall customer base.
SOLID OPERATING PROFILE, AMPLE WATER CAPACITY
The system's primary source of raw water comes from the Biscayne Aquifer and is treated by two water treatment plants with a combined treatment capacity of 46 million gallons per day (mgd). The county is permitted by the water management district to withdraw nearly 41 mgd through 2028, which is ample given the current water demands. The county also has rights to 9.3 mgd from the deeper Floridan Aquifer and typically purchases water on a wholesale basis from the city of
The wastewater system includes one large regional wastewater treatment plant with a capacity of 95 mgd. The plant is shared among the system's 11 wholesale customers, with the county reserving approximately 20% of the plant's capacity for its retail customers. The average daily flow in fiscal 2013 was 70 mgd, indicating sufficient capacity remains for the near term. Plant effluent is disposed of through ocean outfalls, deep injection wells, and a 10-mgd reclaimed water system.
In 2013, the state legislature amended the ocean outfall requirements to allow utilities such as
Regulatory mandates recently adopted by the state to lower nutrient levels in treated wastewater are not expected to significantly impact the county as a result of the above-mentioned reclaimed water system enhancements and already implemented biological nutrient removal treatment standards.
STRONG LIQUIDITY AND AFFORDABLE RATES PROVIDE FLEXIBILITY
The system's liquidity position has strengthened over the past few years with unrestricted cash and investments that have more than doubled from fiscal 2009 to fiscal 2012. In fiscal 2012, the system had over
In fiscal 2013, the residential monthly bill for combined service remains affordable at approximately
STABLE HISTORICAL FINANCIAL RESULTS EXPECTED TO REMAIN SOLID
The system's financial profile remains solid evidenced by strong operating margins and solid DSC of 1.7x or better in each of the past five fiscal years. Preliminary results for fiscal 2013 show a slight decline in DSC to about 1.6x, which is still considered sufficient at the current rating level given the county's strong balance sheet and low rates. The free cash flow ratio, which measures the amount of cash flow from operations that is left after operating expenses and debt service are paid, is somewhat low and suggests the system must issue additional bonds to fund its capital needs.
Updated financial projections provided by the county show a rise in DSC to 1.75x in fiscal 2015 before another slight decline to 1.5x by fiscal 2017 as the debt service from the expected series 2016 bonds is included in the forecast. Fitch expects the system will maintain a solid financial profile going forward and believes the aforementioned strong liquidity and low rates sufficiently mitigate the lower projected DSC. However, if DSC falls below the forecast or if liquidity is substantially lower than current levels, downward rating pressure may result.
DEBT BURDEN TO REMAIN SLIGHTLY ELEVATED WITH LARGE CIP
The system's debt position is somewhat mixed with high debt-to-net plant (80%) and a slightly elevated debt per customer ratio, which includes an estimated number of retail connections served through wholesale contract, of
The system's large wholesale customer base partially offsets concerns over these elevated ratios as the system recoups some of its capital outlay through its wholesale rates. The system's five-year capital program through fiscal 2018 is fairly large at approximately
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
--'Revenue-Supported Rating Criteria' (June 2013);
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013);
--'2014 Water and Sewer Medians' (December 2013);
--'2014 Sector Outlook: Water and Sewer' (
2014 Outlook: Water and Sewer Sector
2014 Water and Sewer Medians
U.S. Water and Sewer Revenue Bond Rating Criteria
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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