The Rating Outlook is Stable.
The bonds are secured by a senior lien pledge of the net revenues of the county's sewer system.
KEY RATING DRIVERS
IMPROVED, STABLE FINANCIAL PERFORMANCE: Debt service coverage (DSC) has steadily improved from fairly weak levels in 2008-2010 to close to 2.0x in fiscal 2013. Liquidity is very strong and offsets the system's slightly below average free cash flow. Fitch believes the stronger expected margins will allow the system to fund capital needs and maintain liquidity levels.
MANAGEABLE CAPITAL NEEDS: With improved financial margins, the county is expected to be able to fund system capital expenses (CapEx) without issuing additional debt.
DEBT BURDEN MODERATING: The debt burden continues to improve. Rapid amortization of existing bonds coupled with a modest and cash-funded capital program should continue to moderate debt ratios over time.
RATES ON THE RISE: County-approved rate increases beginning in 2012 will increase user charges by 24% through 2015. The increases have already improved many key financial metrics, as previously expected, which Fitch views positively even though rates are above affordability markers.
STABLE CUSTOMER BASE AND ECONOMY: The county is part of the Tampa-St. Petersburg MSA, which is the 2nd largest metropolitan area in the state. The customer base is comprised of mainly retail residential customers, which are relatively stable and diverse. The service area is substantially developed, limiting customer growth to infill development. The county's improving unemployment rate is led by solid employment growth since 2011.
WELL-MANAGED FINANCIAL AND DEBT PROFILES: The rating is sensitive to shifts in various credit fundamentals including a continued trend of strong financial results, maintenance of solid DSC, and strong liquidity. If these results continue, and if capital needs remain modest, positive rating action could be warranted.
DIVERSE SERVICE AREA, COASTAL LOCATION ATTRACTS TOURISTS AND RETIREES
The county's sewer utility system served roughly 81,000 retail connections and four wholesale customers in 2013 and covers a service area totaling 106 square miles. The system covers much of the unincorporated areas of the county, and to a lesser extent provides service to areas within the city limits of certain municipalities.
The mostly residential customer base remains stable, and wholesale municipal customers comprise just 12% of total revenues. All of the wholesale customers are signed to long-term, flow-based contracts. The system also provides reclaimed water (non-potable) service to approximately 23,000 retail water customers and to several wholesale customers. The county is almost completely developed; the customer base has been stable with relatively modest growth expected.
SYSTEM LIQUIDITY REMAINS STRONG
The system ended fiscal 2013 with nearly
Somewhat concerning is the historically low annual free cash flow (excess revenues remaining after operating and debt service expenses have been paid), which indicates the system is unable to fund routine repair and upkeep from existing rate revenues. However, Fitch projects the system will be able to maintain its healthy liquidity levels despite the expectation to cash-fund the capital program as financial margins are expected to continue to improve and identified capital needs are relatively modest.
Financial projections provided by the county appear reasonable and show continued improvement in financial performance. Rate increases already adopted for fiscal 2014 and 2015 coupled with a decline in annual debt service are expected to improve DSC to more than 2.0x and allow for 100% cash funding of the capital improvement plan (CIP) from excess annual cash flows. The forecast assumes additional modest rate increases beyond fiscal 2015, escalating operations and maintenance costs, and no additional debt.
SOMEWHAT HIGH RATES CONTINUE TO RISE
In total, the county's four-year rate package will increase rates by 24% through fiscal 2015. Rates had only been increased modestly over the years preceding the current rate plan, which was somewhat of a concern given the weak financial results recorded during that time. While positive for financial results, the average residential customer bill for sewer service of approximately
MANAGEABLE DEBT BURDEN TO SLOWLY IMPROVE
The system's debt metrics are mixed. High debt per customer (roughly
The five-year CIP totals
Additional information is available at 'www.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' (
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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