In the course of routine surveillance, Fitch Ratings upgrades the rating on the Florida Community Services Corporation of Walton County, Florida (FCSC) outstanding $38.3 million of water and sewer revenue bonds to ''A+'' from ''A''. The Rating Outlook is Stable.

The upgrade to ''A+'' reflects an improvement in FCSC''s financial metrics. Over the last few years FCSC''s liquidity position has increased substantially, both because of strong operations as well as certain land sales. While draws on reserves to fund the capital improvement program (CIP) over the near future are expected, FCSC''s liquidity position should remain solid.

The ''A+'' rating is based on the FCSC''s strong liquidity, solid debt service coverage, and sound legal provisions. Also considered in the rating are the moderate capital needs for a growing system and relatively limited economy, which includes a strong tourism and retiree component. Despite significant growth pressures leading up to the housing bubble, FCSC has performed well. With growth pressures moderating, the prospect for continued steady financial performance is enhanced.

FCSC is a non-profit, single-purpose entity that owns, operates and leases back its assets to Walton County (the county). FCSC is essentially the sole provider of water and sewer services to the southern portion of the county serving and an estimated 50,000 people. Customer growth has averaged 6% for water and 8.7% for sewer over the last five years. However, more recent growth rates for fiscal 2008 and 2009 were only 1% for both water and sewer customers.

Bonds are secured by a pledged of the trust estate, which includes net revenues and impact fees of the system. Debt service coverage and liquidity levels are strong. Debt service coverage from pledged revenues including impact fees has exceeded 3.5 times (x) coverage for the last three fiscal years and 2.5x coverage without impact fees. Coverage is projected to remain strong despite the decline in impact fees. Liquidity levels, which exceeded four years cash on hand for fiscal 2009, are anticipated to decline moderately over the next few years to support the current CIP but should continue to be strong. FCSC also maintains large balances in restricted reserves related to the renewal and replacement fund and impact fees fund; these restricted balances will fund the bulk of the CIP.

FCSC''s moderate $31.5 million CIP reflects the ongoing needs of the system caused by the growth of the service area. Major projects consist of a new wholesale pipeline, a storage tank and a wastewater expansion project. The pipeline will provide redundancy service to existing customers and additional wholesale service to water customers in Destin and the South Walton Utility. Current system capacity provides sufficient room for moderate growth, with both water and sewer systems operating at 50% capacity. Debt levels are projected to remain moderate even as FCSC continues with its pay-as-you-go financing of the CIP but should ultimately decline over time; no additional debt currently is forecasted. Both residential water and sewer rates have experienced modest increases in recent years between 2%-3%, with the exception of fiscal 2009 in which rates were held constant. FCSC is projecting 3% rate increases annually, which should continue to provide solid coverage while maintaining an adequate level of affordability.

Walton County is located on the panhandle of Florida''s Gulf coast. The service area is located in southern part of the county, which is economically driven from tourism and retirees. Unemployment levels remain below both state and national averages and have not shown volatility to typical seasonal tourism based economies. Wealth levels are on par with the state and nation.

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