The Rating Outlook is Stable.
The bonds are secured by a senior lien pledge of the net revenues of the authority's water and sewer system. Each issue has a separately secured debt service reserve fund except the series 2010 bonds.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: System financial performance has improved over the past several years, due primarily to large rate increases implemented between 2008 and 2011 that have boosted debt service coverage to 2x or more for the last four fiscal years and increased liquidity to more than 400 days of cash on hand.
RATE HIKES DAMPEN FLEXIBILITY: User bills are above average compared to surrounding communities, but still fall below Fitch's affordability threshold. While rate raising flexibility may be shrinking, future rate adjustments are expected to be modest and track inflationary increases.
SOLID SERVICE AREA ECONOMY: The service area benefits from the presence of the
AVERAGE DEBT BURDEN: The system's debt per customer of
MANAGEABLE CAPITAL NEEDS: Ample water supply and significant excess treatment capacity help keep capital needs manageable.
STABILITY EXPECTED: The rating is sensitive to fluctuations in various credit fundamentals including financial and operating performance, capital needs and debt levels. The Stable Outlook reflects Fitch's opinion that such changes are not anticipated at this time.
The authority operates in southeastern
STRONG SERVICE AREA CHARACTERISTICS
The service area benefits considerably from the presence of the university (rated 'AAA', Outlook Stable by Fitch) and its proximity to the
The city and county's unemployment rate is favorable at 4.9% as of
The authority serves approximately 21,000 water and sewer customers. The customer base is mostly residential and stable; however, more than 22% of water sales in 2013 were derived from the university, which remains the single largest customer. This large customer concentration is offset by the university's importance within the state higher education system and its role as a large regional employer. In addition, no other user accounts for more than 1% of system sales.
AMPLE SYSTEM CAPACITY LIMITS FUTURE CAPITAL NEEDS
OWASA's raw water supply is drawn from two surface reservoirs and
Treatment capacity at the authority's water treatment facility totals 20 million gallons per day (mgd), which is well in excess of the 6.6 mgd average daily demand. There is also significant capacity at OWASA's wastewater treatment plant, with design capacity at roughly 2x the current average daily flow. With minimal growth projected and ample supply and treatment capacity, the authority's capital needs through 2019 total a modest
SOLID FINANCIAL RESULTS AIDED BY RATE INCREASES
Despite ongoing declines in consumption that have persisted over the past decade, OWASA's financial performance trends remain strong. Severe drought conditions in 2002 and again in 2007 through 2008, coupled with the implementation of a conservation-based rate structure and the use of reclaimed water, led to a significant drop in demand of about 30% from 2002 to present. The corresponding decline in operating revenues prompted the implementation of sizeable rate hikes to boost operating margins and increase debt service coverage.
Coverage since 2010 has consistently registered at or above 2x. Management forecasts, which appear reasonable and relatively conservative, indicate continued coverage of 1.8x-2.2x through fiscal 2019. Unrestricted cash and equivalents also has improved and for fiscal 2013 was over
RATES ARE RELATIVELY HIGH
Water and sewer rates cumulatively have gone up by 42% and 47%, respectively, between fiscal 2007 and 2013. The average monthly residential bill for combined service is a somewhat high
AVERAGE DEBT BURDEN TO IMPROVE
The debt burden is adequate for the rating category with debt per customer of
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 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' (
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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