The Rating Outlook is Stable.
The bonds are secured by a pledge of a first lien on net revenues of the water and sewer system (the system), including legally available system development fees. Debt service reserve fund requirements are funded through the use of surety policies.
KEY RATING DRIVERS:
HIGHLY LEVERAGED SYSTEM: The system's debt levels are very high and Fitch expects them to remain elevated based on future capital needs. The system's combined debt per customer of
ADEQUATE COVERAGE, HEALTHY LIQUIDITY: Financial performance has remained adequate in light of the growing debt burden. The system posted solid senior lien debt service coverage (DSC) of 1.9x and all-in DSC 1.4x in fiscal 2013. Liquidity is healthy with over 385 days of cash on hand, inclusive of the system repair and renewal reserves.
DIMINISHED RATE FLEXIBILITY: Future rate setting flexibility may be hindered by very high rates coupled with below average wealth levels. Continued rate escalation over previous years will continue to pressure the rate base.
AMPLE SUPPLY/SYSTEM CAPACITY: The system has ample water supply and treatment capacities and is in compliance with all applicable regulations.
STRAINED ECONOMIC CONDITIONS IMPROVING: The city continues to face challenges as a result of the housing crisis. Aspects of the economy are showing signs of improvement with population increasing and unemployment figures dropping to below the national average.
FINANCIAL STABILITY: Failure to maintain adequate debt service coverage levels for the rating and sound liquidity could cause downward pressure on the rating.
FURTHER LEVERAGING: Additional debt beyond what is currently anticipated, including the
The city (implied general obligation rating 'AA-'; Negative Outlook by Fitch) is located in
AMPLE WATER SUPPLY AND TREATMENT CAPACITY
The water supply system is operating under permit from the
GROWTH & AGING FACILITIES FUELED HEAVY DEBT BURDEN
Debt levels for the system are elevated and well above the debt per capita median for similarly rated credits. Amortization is above average with 7%-8% of the debt rolling off each year. Historically all capital improvements were financed through debt issuance, both senior lien debt and subordinate lien state revolving loans. Capital needs focused on expanding infrastructure to address area growth as well as on the replacement of aging facilities.
Long-term debt outstanding for fiscal 2013 totals
RETURN OF GROWTH COULD PRESSURE CAPITAL PLANS
Capital needs which declined due to recessionary pressures resulted in the deferment of capital projects. Current capital needs (2015-2019) are estimated at
Capacity of the wastewater system is at 35%. When 25% of system capacity remains additional treatment capacity in the form of a new East Water Reclamation Plant (WRP) will be necessary. The plant has an estimated cost of
If growth continues to rebound at a more rapid pace, pressuring wastewater system capacity, the
STABLE FINANCIAL PERFORMANCE
Financial metrics have remained adequate as debt burden increased. DSC on senior lien debt has remained healthy at 1.9x for the past two fiscal years, while the Fitch calculated all-in DSC registers a weaker 1.3x and 1.4x for fiscal 2012 and 2013, respectively. Unrestricted cash and investments for fiscal 2013 registered a strong 385 days of cash on hand. Given the city's policy of debt financing capital needs, liquidity levels should remain strong. Planned rate increases of 4% for 2014 and annual 5% increases through 2018 should keep revenues sufficient to maintain DSC levels in line with historical norms.
REDUCED RATE FLEXIBILITY
An average monthly residential water and sewer bill (based on a relatively low consumption of 4,000 gallons) totals
HOUSING MARKET & ECONOMY SHOWING IMPROVEMENT
The economy is concentrated in health care, higher education, tourism and, until lately, real estate and construction. The housing market correction and recession have had a magnified effect on the area and its economy. During the recession, the area saw a high number of foreclosures, population decline and taxable assessed values dropped approximately 49% from fiscal 2008-2013. However, there are signs up economic improvement with the taxable assessed value for 2014 up 9% from 2013.
Employment growth is also rebounding after three years of decline, with employment growing 3%-5% annually from 2012 to 2014. As a result, the
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope, Zillow and
--'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
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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