--Approximately 76.5 million regional wastewater system refunding revenue bonds, 2014 series B.
In addition, Fitch affirms the 'A+' rating on the authority's approximately
The Rating Outlook is Stable.
The bonds are secured by a first lien on net revenues of the authority. Outstanding bonds are also secured by a cash funded debt service reserve.
KEY RATING DRIVERS
STABLE SERVICE AREA: The authority provides wastewater collection and treatment to a sizeable service area anchored by
LEVERAGE REMAINS ELEVATED: The authority's debt profile has shown some improvement but remains high. Fitch expects that with additional planned borrowings, debt will remain well above Fitch's rating category medians.
AMPLE FLEXIBILITY: Affordable user charges and the authority's ability and demonstrated willingness to raise rates independent of outside regulation or oversight provides significant flexibility needed to meet an expected rise in the authority's debt levels.
SOUND FINANCIAL METRICS: Financial results have improved in recent years, prompting all-in debt service coverage (DSC) and liquidity to exceed Fitch's median ratios for the given rating category.
MANAGEABLE CAPITAL PROGRAM: Capital needs, despite the inclusion of regulatory requirements, are not onerous. However, additional debt issuance is forecast to fund the vast majority of the authority's capital program, resulting in an estimated 25% increase in leverage metrics.
MODERATION IN DEBT LEVELS: The planned increase in leverage offsets the authority's otherwise stable credit profile and is likely to preclude positive rating consideration over the medium term.
REGIONAL UTILITY PROVIDER
The authority was created in 2005 to provide wastewater collection and treatment to approximately 47,700 customer accounts located in the cities of
Almost one-half of the authority's customer base resides in
ADEQUATE TREATMENT CAPACITY
The authority's lone treatment plant provides ample treatment capacity and is reportedly in adequate repair. The plant has an average daily design flow capacity of 40 million gallons per day (mgd) and provides primary and secondary treatment for all wastewater influent up to 60 mgd. Average daily flows gradually declined during and immediately following the recent economic recession but have since grown modestly over the prior three fiscal years. The average daily flow in fiscal 2013 was approximately 29 mgd, down from about 34 mgd in the latter part of the prior decade. The authority's financial forecast reasonably assumes flat demand over the ensuing five years, which mirrors assumed growth patterns for the customer base.
IMPROVING FINANCIAL PROFILE
Financial operations have improved in recent years, principally due to rising rates and a return to modest growth in consumption. Net of rate stabilization (RSF) draws, annual DSC averaged a weak 1.1x between fiscals 2008-2010 compared to 1.6x over the three most recent fiscal years and the rating category median of 1.5x. Liquidity also strengthened in recent years, growing from just under 300 days of cash on hand to nearly 470 days at the close of fiscal 2013.
Fitch views favorably the authority's yearly practice of formulating a cost of service study as a basis for determining its longer term revenue and rate requirements. The multi-year forecast projects total operation and maintenance costs as well as future debt service, which then determines the amount of revenue needed to achieve the authority's 1.15x DSC target. Fitch notes that the authority has a demonstrated history of meeting or exceeding its stated financial projections.
The authority's wastewater rates remain largely affordable, despite measured increases implemented annually dating back to 2005. Annual rate hikes since 2010 have been manageable, rising by an annual average of 7.75% and leaving the average monthly residential bill at about
MANAGEABLE CAPITAL NEEDS BUT RISING DEBT LEVELS
The system's multi-year capital improvement program totals a manageable
The authority expects to issue an additional
STABLE SERVICE TERRITORY
Economic indicators for the service area are somewhat weak but have yet to impair the authority's ability and willingness to raise rates or maintain strong collections. Median household income 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', dated
--'2014 Outlook: Water and Sewer Sector', dated
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
Source: Fitch Ratings
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