The bonds will be sold through competitive sale during the week of
Also, Fitch affirms the 'AA+' rating on the following
The Rating Outlook is Stable.
Revenue bonds are secured by the combined net revenues of the water and wastewater system of the city.
KEY RATING DRIVERS
STRONG REVENUE BONDCOVERAGE: Debt service coverage of revenue bonds has averaged 4.0x over the past three years and is expected to become stronger through the remaining life of the bonds (2020).
MORE MODEST OVERALL MARGINS: Net revenues of the system are used to support approximately
LIMITED RATE ACTION: Rate increases were less than assumed in Fitch's last rating review, reflecting stronger operating performance and the delay of certain capital spending. Wastewater rates were increased 9% in fiscal 2014 and water rates were not increased.
AMPLE SYSTEM CAPACITY: Water supplies and wastewater system capacity are adequate to meet current and medium-term needs given the relatively built-out nature of the city.
NO ADDITIONAL REVENUE BONDS: The city expects to finance future system capital needs from excise tax bonds, including new debt of around
LOWER OVERALL MARGINS: Declines in overall debt service coverage could result in rating pressure.
MATURE SERVICE AREA; SOME CONCENTRATION
Management forecasts did not include additional revenue assumptions based on the Intel expansion. The service area does exhibit some concentration in the technology sector, and the top 10 water customers account for 18% of revenues.
LOWER RATE INCREASES THAN ANTICIPATED
The 2011 rate hike was relatively modest, with higher assumed increases in later years. Water rates have not been adjusted since 2011 and, at present, no additional increases are forecasted until fiscal 2018. Sewer rates were increased 9% at the beginning of fiscal 2014 and reclaimed water rates 18%. Additional sewer rate increases are anticipated.
The lack of rate increases in the past couple of years and lower forecasted increases than anticipated in Fitch's 2011 review reflect better than expected financial performance (primarily through lower expenditures), and the delay of certain capital projects. It also may reflect some rate sensitivity, although the combined charge of
STRONG REVENUE BOND COVERAGE; MODEST ALL-IN COVERAGE
Revenue bonds continue to enjoy stronger coverage levels, given management's practice and continued intent to use excise tax bonds to finance system capital needs. Revenue bond coverage was 5.2x in fiscal 2013. Coverage should remain above 4.0x through final maturity in 2020.
Fitch includes outstanding system-related GO and excise tax bonds as obligations of the system, given management's stated intent to support these obligations from system revenues. Coverage of all obligations in fiscal 2013 was sound at 1.7x. With
Remaining cash flow of the system is modest after payment of all obligations. Free cash flow is consistently lower than annual depreciation levels, leaving limited excess revenues for reinvestment in system infrastructure. As a result, capital spending is largely debt-financed (other than improvements paid for by Intel). While typical of a fast-growth system that is financing assets to serve new customers, Fitch expects to see a transition to a more balanced funding of capital replacement from revenues as
Cash reserve levels remain strong. The city ended fiscal 2013 with
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' (
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'2014 Water and Sewer Medians' (
--'2014 Outlook: Water and Sewer Sector' (
Revenue-Supported Rating Criteria
2014 Outlook: Water and Sewer Sector
2014 Water and Sewer Medians
U.S. Water and Sewer Revenue Bond Rating Criteria
Source: Fitch Ratings
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