The Rating Outlook is Stable.
The bonds are secured by a senior lien pledge of the net revenues of the city's storm water system (the system).
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The system is conservatively managed, consistently demonstrating strong financial performance with exceptional debt service coverage (DSC) and free cash flows, and solid liquidity.
STABLE REVENUE BASE: Storm water fees are independently established by the city and are based on an equivalent residential unit's impervious surface area, resulting in a very stable revenue stream. In addition, the fees are collected as part of the city's water and sewer bill with a history of strong collections.
FEES ARE SOMEWHAT HIGH: The city has approved fairly sizable multi-year fee increases since 2008, leading to monthly charges that are slightly higher than neighboring storm systems. However, the system is self-supporting and the increases provide robust resources for the capital program, which Fitch views positively. Additional fee increases have been approved for 2015.
VERY LOW SYSTEM LEVERAGE: Outstanding debt for the system is very low, and the capital plan, which is driven by storm water quality enhancements and infrastructure rehabilitation, is expected to be funded from internal sources and some additional debt, although debt ratios are projected to remain very manageable.
STABLE SERVICE AREA ECONOMY: The economy, traditionally concentrated in the military and tourism sectors, continues to diversify and has remained relatively stable. As a result, the system's large and mostly residential customer base has also been stable, and continues to display strong demographic indicators.
RATING STABILITY EXPECTED: The rating is sensitive to shifts in various credit fundamentals including financial performance, capital and debt needs and regulatory performance. The Stable Outlook reflects Fitch's belief that such changes are unlikely over the next several years.
STABLE REVENUE BASE, FULL RATE-RAISING AUTHORITY
Storm water fees are determined based on a property's impervious surface area, which is equal to 2,269 square feet per equivalent residential unit (ERU). Fees are set by the city council and have been significantly and incrementally increased since fiscal 2008. Bills are sent bi-monthly and are coupled with the customer's water and sewer utility bill. Delinquent accounts are subject to water service suspension; however, the system has historically achieved very high collection rates and any partial payments are applied first to the storm system. In addition, ranking is on parity with liens for unpaid taxes, including real estate taxes.
For fiscal 2014, the storm water fee totals roughly
The fee increases were implemented to offset the city's decision to discontinue the annual transfer from the
STRONG FINANCIAL PROFILE
The rate increases have extended a streak of strong operating revenue growth, especially over the past two fiscal years. Historically strong financial margins have produced very strong DSC and free cash flows, and, along with the system's very low debt burden and strong service area economy, provide the underpinning for the system's 'AAA' rating. For fiscal 2013, the system generated nearly 8.0x coverage of all debt service from net operating revenues. The system's liquidity position remains solid despite a decline in cash due to a change in accounting for cash reserved for capital expenses. Nevertheless, the system held over
LOW DEBT BURDEN, CAPITAL PLAN REMAINS MANAGEABLE
The debt burden remains very low and is a significant credit strength for the system. Debt-to-net plant fell below 10% in fiscal 2013 and debt per customer was just
STABLE AND DIVERSIFYING ECONOMY
The city of
Fitch expects Federal sequestration cuts to have a modest impact on the city, though a broader impact on the region given the higher level of military-related ship repair and maintenance activities taking place outside of the city. However, efforts to diversify the economy continue as the city works to attract service industries including professional services, telecommunications and marine-related services. The city's unemployment rate, which has historically fared better than that of the Commonwealth and the nation, improved to 4.9% in
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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