News Column

Fitch Affirms Nassau County Sewer & Storm Water Auth's (NY) Revs at 'AA-'; Outlook Stable

May 23, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'AA-' rating on the following bonds of the Nassau County Sewer and Storm Water Finance Authority, New York (the authority):

--Approximately $138.8 million system revenue bonds, 2004 series B and 2008 series A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a gross revenue pledge of authority assets, funds and revenues set by Nassau County pursuant to a financing and acquisition agreement (the agreement) between the county and the authority. The county has covenanted with the authority in the agreement to levy sewer assessments sufficient to enable the authority to pay debt service on authority bonds first, then pay debt service on outstanding bonds issued by or on behalf of the county for sewer or storm water purposes, fund operating expenses of the county's sewer and storm water resources district and pay the authority's operating expenses. Outstanding authority bonds do not carry a debt service reserve.

KEY RATING DRIVERS

ROBUST DEBT SERVICE COVERAGE: The authority's gross lien on sewer assessments levied by the county continues to provide for exceptionally strong coverage of the authority's debt service and ample coverage of all required obligations under the agreement between the county and the authority. Fitch expects the authority's strong coverage levels to continue given the lack of future debt plans.

STABLE SERVICE AREA: Pledged assessments are derived from a large and diverse tax base with good economic and wealth indicators.

MIXED SECURITY FEATURES: The authority's bonds are secured by a gross lien on sewer and storm water assessments collected on property tax bills. However, legal covenants permit assessments to be set at only 80% of total projected debt service and operating expenses. Healthy reserve levels partially mitigate this risk.

ESCALATION IN DEBT LEVELS: Although not anticipated, additional debt that significantly reduces debt service coverage and/or a reduction in existing reserves that provide a needed cushion to offset the weak legal covenants would be viewed negatively.

CREDIT PROFILE

New York State established the authority in 2003 to achieve debt-related cost savings to Nassau County (general obligation [GO] bonds rated 'A' with a Negative Outlook) for historical and future sewer and storm water capital investments. The authority's purpose is limited to refinancing outstanding sewer and storm water debt issued by or on behalf of the county and to finance future sewer and storm water projects of the Nassau County Sewer and Storm Water District (the district) in an amount not to exceed $350 million.

Pursuant to the agreement, the authority acquired all of the district's sewer and storm water facilities, buildings, equipment and related assets (other than land) and is obligated to pay for the system assets in installments by undertaking to pay debt service on outstanding GO bonds issued by or on behalf of the county.

The authority's revenues are derived from sewer and storm water assessments, which are collected on the property tax bill. The agreement requires the county to direct each underlying city and town receiver of taxes and assessments to pay all assessments directly to the authority's trustee. The authority retains sufficient funds to service all debt (including county sewer and storm water bonds) and pay its operating expenses each year. Excess funds are remitted to the district to fund its operations.

Coverage of the authority's annual debt service and the county's sewer and storm water debt obligations has remained at a high level each year since the authority's creation. Debt service coverage on the authority's obligations has remained above 7.0x, while coverage of total debt service continues to exceed 2.0x.

The district provides sewer and storm water collection and treatment to most county residents. County income indicators measured on a per capita and median household basis continue to exceed state and national figures by a wide margin, as does the county's most recent unemployment rate of 5.2%.

The county's strong socioeconomic profile continues to drive generally strong collection rates of sewer and storm water assessments, and any deficiency in tax collections would be remitted in full to the authority by the county. Pursuant to the agreement, the county is required to establish and maintain an operating and maintenance reserve fund in an amount not to exceed 25% of operating expenses of the district.

The O&M reserve fund would be available to the authority (after request from the trustee) if necessary to pay debt service on authority bonds in the event revenues are insufficient. Fitch believes the generally high collection rates of annual assessments, strong debt service coverage on authority debt service provided by the gross lien, and the availability of robust reserves to cover any shortfall in revenue provides sufficient protection for bondholders.

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.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', June 2013;

--'U.S. Water and Sewer Revenue Bond Rating Criteria', July 2013;

--'2014 Water and Sewer Medians', dated December 2013;

--'2014 Outlook: Water and Sewer Sector', dated December 2013.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275

2014 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724358

2014 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724357

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831531

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Christopher Hessenthaler

Senior Director

+1 212-908-0773

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Karen Wagner

Director

+1 212-908-0230

or

Committee Chairperson

Amy R. Laskey

Managing Director

+1 212-908-0568

or

Media Relations, New York

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com




Source: Fitch Ratings


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