Fitch Affirms & Withdraws Baltimore, Maryland Water/Wastewater System Ratings

Fitch Ratings affirms and simultaneously withdraws the following underlying ratings on the City of Baltimore, Maryland (the city) bonds due to lack of ongoing disclosure to Fitch:

--$302.5 million in outstanding senior lien water revenue bonds at 'A+';

--$66.4 million in outstanding subordinate lien water revenue bonds at 'A';

--$288.7 million in outstanding senior lien wastewater revenue bonds at 'A+';

--$146.6 million in outstanding subordinate lien wastewater revenue bonds at 'A';

The Rating Outlook on all bonds is Stable.

The ratings reflect the sound financial profile for the individual water and wastewater systems, the strength of suburban wholesale arrangements that add stability to the systems' revenue streams, and the satisfactory legal structure. Credit concerns are centered around significant capital needs, reflective of an aged system. These capital costs will necessitate a continued need to raise rates, which could pressure the rate base over time.

The systems, which are securitized separately, serve approximately 1.8 million people within the city of Baltimore and the outlying suburban areas of Baltimore, Anne Arundel, Carroll, Harford and Howard counties. The city owns two water treatment plants, which treat water primarily from three local reservoirs. The water system capital improvement plan (CIP) for fiscal years 2010-2015, estimated to cost $935 million, is focused on the construction of a new plant as well as rehabilitation of system assets.

The CIP for the city's wastewater system is large at $1.3 billion. Major projects include costs associated with a consent decree regarding combined sewer overflows and sanitary sewer overflows, executed in April 2002, and upgrades to conform to the enhanced nutrient reduction regulations as part of the Chesapeake Bay restoration initiative. The latter project largely will be funded by the statewide environmental surcharge. Around 34% of the combined water and wastewater CIPs will be funded with bonds, using Baltimore County sources as the secondary support, as per the wholesale agreement.

Through fiscal 2008 each system maintained solid financial metrics, although the water system demonstrated a more favorable financial profile. All-in annual debt service (ADS) coverage for fiscal 2008 was 2.3 times (x) for the water system and 1.5x for the wastewater system. For the same period, liquidity levels for both systems exceeded 250 days cash and 200 days of working capital. Cost recovery for the individual systems was mixed for the year, with the water system generating surplus revenues equal to over 230% of depreciation while the wastewater system produced just over 50%.

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
Doug Scott, [phone] (Austin)
Barbara Rosenberg, [phone] (New York)
Media Relations:
Cindy Stoller, [phone] (New York)
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