Fitch Ratings assigns an 'A+' rating to Seacoast Utility Authority, Florida's (the authority) water and sewer utility system revenue bonds, consisting of:
--$8.9 million, series 2009A;
--$69.3 million, series 2009B (taxable Build America Bonds).
In addition, Fitch affirms the 'A+' rating on $45.1 million of the authority's outstanding parity water and sewer utility revenue bonds, series 1989A and 2001. (The authority's series 2005 and 2006 variable rate bonds were not assigned an underlying rating by Fitch.) The bonds will be used to pay for capital improvement costs, make a reserve fund deposit, and pay costs of issuance. The bonds are secured by a senior lien on net revenues of the authority. The Rating Outlook is Stable.
While the original rating for the water and sewer utility system revenue bonds, series 1989A was assigned Nov. 5, 2001, the rating was not reflected on Fitch's web site. With this affirmation the full rating history is now available on the Fitch Ratings web site at 'www.fitchratings.com'.
The 'A+' rating reflects the authority's good financial performance, above-average leverage amounts, affordable rates and an economically stable and diverse service area. Debt service coverage is expected to decline as a result of rising fixed costs from this issuance, but liquidity should remain strong. Medium-term capital needs appear manageable, which will limit further pressure to the authority's operating performance.
For fiscal 2008, senior lien annual debt service (ADS) was a solid 2.3 times (x). However, with this issuance ADS coverage is expected to decline to the 1.5x range over the next five years. While the decline marks a change from where coverage has trended historically, other financial metrics remain favorable. Liquidity for fiscal 2008 was very good with nearly 470 days cash on hand and is expected to remain stable or even improve over time. In addition, authority cash flows are good, generating full cost recovery of service.
The authority's five-year capital improvement plan (CIP) totals $93 million, the majority of which will be funded from this transaction. The bulk of the CIP is devoted to construction of a new water treatment facility which will improve the quality of water delivered. The new plant also will provide a more efficient alternative for renewal and replacement of aging infrastructure, produce a recyclable byproduct, and allow for the treatment of brackish Floridan aquifer water (a potential new source of supply for the authority). Despite the size of the current offering, authority debt levels compare favorably to similarly-rated credits and should continue to perform well over the five-year horizon given that no additional borrowings are planned.
The authority's water and sewer rates have been raised as needed and proposed fiscal 2010 rates call for roughly a 10% increase to the combined monthly bill (based on water and sewer usage of 10,000 and 6,000 gallons per month, respectively). Despite the proposed increase, rates remain affordable at just 1.0% of median household income. The authority has indicated that it may begin indexing rates in 2010, which will allow for more uniform rate hikes at inflationary levels.
Seacoast Utility Authority was established in 1988 when the authority acquired the assets of a private water and wastewater utility. The authority was created by an interlocal agreement between Palm Beach County, the city of Palm Beach Gardens, the village of North Palm Beach, and the towns of Juno Beach and Lake Park. The 65 square-mile service area in northeastern Palm Beach County, including part of the county's unincorporated areas, is predominantly residential with no revenue concentration. Economic prospects for the authority are favorable due to low unemployment rates and high wealth levels.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
Julie Seebach, 512-215-3740, Austin
Christopher
Hessenthaler, 212-908-0773, New York
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
