The Rating Outlook is Stable.
The bonds are secured by net water and storm sewer revenues after payment of maintenance and operations expenses.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: Financial performance has been strong with solid debt service coverage and high liquidity maintained across a variety of weather and economic conditions.
LOW DEBT BURDEN: Debt levels are low, with faster-than-average amortization, and the utilities' capital plans include no additional borrowing in the next five years.
HEALTHY SERVICE AREA: The
AMPLE WATER SUPPLIES: The water system benefits from an ample, secure supply of water that requires limited treatment and allows the system to offer low rates compared to other
RATES AND FINANCES: The rating is sensitive to shifts in fundamental credit factors, particularly financial performance and rate-setting behavior. The Stable Outlook means that Fitch does not expect such changes. The rating is unlikely to move higher.
The city of
STRONG FINANCIAL PERFORMANCE
Financial operations are sound but variable due to the impact of weather on water sales. All-in debt service coverage has averaged a very strong 2.5x over the three fiscal years ended
The city expects coverage to remain above 2.0x across the forecast horizon (through fiscal 2018). The forecast - which conservatively assumes minimal demand growth and expense growth above inflation - appears reasonable. The city's strong liquidity positions it well to withstand occasional weather-related misses in the forecast. Unrestricted cash and investments rose to
SOLID RATE DISCIPLINE, ADEQUATE FLEXIBILITY REMAINING
The city's water (about 75% of pledged operating revenues) and storm sewer (25%) rate structures provide a reasonable degree of revenue stability and predictability. Pledged storm sewer revenues are based on flat fees per residence or equivalent service unit, while fixed meter fees account for about 45% of the average residential water bill.
The city's elected policymakers have shown good rate discipline, and rate setting appears reasonably uncontroversial. The city has made timely increases in water rates in recent years with rates rising an average of 4.6% annually from fiscal 2011 to 2015. Water rates remain low in comparison to other
Storm sewer rates are adjusted less frequently and equal just 0.1% of MHI. The storm sewer enterprise has limited operations, requiring intermittent rate hikes timed around capital needs, not the regular rate adjustments of a water enterprise.
MODEST DEBT BURDEN
Debt levels are low and likely to remain low over the next five years. Long-term debt per capita is modest at just
Amortization is above-average with 61% of debt repaid in 10 years and 100% in 20 years. The city's capital plans are driven by maintenance of existing water infrastructure and occasional storm water basin acquisitions to improve management of runoff that flows from nearby the town and nearby mountains in to
AMPLE WATER SUPPLIES
Although a separate legal entity from the city, the MWDO was created to acquire, develop, store and sell water for the benefit of the city, and the organization's board is appointed by the city. The city currently has legal entitlement to about twice its average daily water needs and expects its current supplies to be adequate through at least 2035.
SOLID SERVICE AREA
The water system has a diverse customer base with just 4% of sales (by volume) to the top 10 customers and about 65% of revenues from residential accounts. The storm sewer system has a more concentrated customer base with about 20% of revenues from the top 10 customers. The top customer lists includes a mix of religious, governmental, educational, retail and commercial users with no sector concentration.
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 informed by information from CreditScope and IHS Global Insights.
--'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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