The bonds are expected to sell on or around the week of
In addition, Fitch affirms the following:
The Rating Outlook is Positive.
The bonds are secured by a senior lien on the authority's gross revenues excluding development charges.
KEY RATING DRIVERS
OUTLOOK REFLECTS REGULATORY COMPLIANCE PROGRESS: The Positive Outlook reflects the authority's substantial progress to date in addressing remedial actions and improving operating performance. After a lengthy period of non-compliance and regulatory actions, the authority is in compliance with all regulatory requirements and has proactively addressed recent additional
FINANCIAL FORECAST POSITIVE: The Positive Outlook further reflects GWA's recent more consistent financial performance and positive financial forecast aided by the approval of a five-year rate package through fiscal 2018.
POLITICAL WILLINGNESS TO RAISE RATES: The five-year rate package to support the authority's substantial capital needs, effective
ELEVATED DEBT AND CAPITAL PRESSURES: Debt levels are high and significant capital needs remain to meet ongoing regulatory requirements, which could challenge future financial results.
MILITARY BUILD-UP DELAY CONTINUES: Additional capital projects will ultimately be needed to meet expected military build-up demands, although actual needs are not incorporated into GWA's capital improvement program (CIP). However, GWA expects capital costs incurred as a result of the eventual build up will be funded by the
LIMITED ECONOMIC PROFILE: The service territory is isolated and limited and has had a historical disposition to natural disasters. However, tourism has continued to diversify and recover from the economic downturn, reaching near peak levels in 2013 which are continuing into 2014.
CONSISTENT COMPLIANCE AND FINANCIAL PERFORMANCE: Positive rating action is contingent upon the authority's continued compliance with regulatory requirements as well as its ability to produce fiscal 2014 results and maintain favorable out-year expectations in line with its financial forecast.
POSITIVE OUTLOOK REFLECTS COMPLIANCE ACTIONS AND FINANCIAL FORECAST
The system has recently taken a number of actions to bring it into regulatory compliance and ensure stable operations and finances. A history of weak financial performance and violations of the federal Clean Water Act (CWA) and Safe Drinking Water Act (SDWA) necessitated involvement at the federal regulatory level.
Structural changes, which began in 2002 when the authority's governance was changed from an appointed to an elected governing board, resulted in the system's full compliance to date with the
FAVORABLE FINANCIAL RESULTS AND FORECAST
GWA ended fiscal 2013 in line with prior expectations. Fitch-calculated senior lien debt service coverage (DSC), which is based on audited results and includes accruals, was almost 2.3x while total DSC was 1.4x. DSC was aided by a 9% rate increase effective in
GWA projections for fiscals 2014 2018 are in line with its last forecast from
STRONG HISTORY OF COMMITMENT TO RAISING RATES CONTINUES
GWA's five-year rate proposal that covers fiscals 2014-2018 was approved by the PUC on
SIGNIFICANT IMPROVEMENT IN REGULATORY COMPLIANCE; CONTINUED CAPITAL NEEDS TO SEVERELY WEAKEN DEBT PROFILE
In 2003 the authority negotiated a stipulated order (SO) with the USEPA as a result of violations to the CWA and SDWA. To cure system-wide deficiencies, the SO was subsequently amended and superseded by the order, which added several major projects to be constructed. Projects included in the order are expected to cost
The USEPA also issued a notice of Findings of Significant Deficiencies for the water system in 2012 and for the wastewater system in 2013. Notably, the authority has addressed 26 of the 40 items identified for water, 10 are in progress, and four are long-term continuing actions. The authority has addressed 76 of the 88 items identified for wastewater and is developing corrective action plans for the remaining 12 items.
GWA's progress in addressing regulatory requirements is a positive, but the authority faces significant capital needs to meet remaining requirements. The fiscal 2014-2018 CIP totals
SECONDARY TREATMENT NOT ADDRESSED IN CIP
The authority's two largest wastewater treatment plants (WWTPs) have historically operated under secondary treatment variances issued by the USEPA under the CWA, allowing the authority to discharge primary effluent into the
The authority estimates the cost of upgrading both treatment plants at
MILITARY BUILD-UP DELAYED
Positively, the federal government recently appropriated
The island's economy is driven by the military and tourism sectors. Most tourists are Japanese citizens, although there has been an increasing percentage of South Koreans visiting the island. The year 1997 was the peak year for visitors to the island before a series of setbacks from the Asian economic decline throughout the last decade and various natural disasters, continuing through the recent worldwide economic downturn. However, a recovery is evident with fiscal 2013 marking the second highest year for visitor arrivals and hotel occupancy rates at 85%, the highest in more than a decade; fiscal 2014 is on track to meet or exceed these numbers.
Unemployment on the island is mixed depending on the source, ranging from historically very high (in excess of 20%) to only moderately high. Wealth levels are low, with estimated MHI around 75% of the U.S. average.
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' (
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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