In the course of routine surveillance, Fitch Ratings affirms its ''BBB+'' rating on Waterworks District No. 1 of Ward 1 of Calcasieu Parish, Louisiana''s (the district) $1.2 million of outstanding water revenue refunding bonds, 2002 series A and B. The bonds are payable from net revenues of the district. The Rating Outlook is Stable.
The ''BBB+'' rating reflects the adequate financial performance of the district, the maintenance of rate flexibility, sufficiency of supplies, and adequate legal provisions. The primary credit concern is the narrow rate base in which rising expense pressures may have a disproportionate impact on financial performance than systems with larger customer levels. The district was in technical violation of its bond covenants in fiscal 2008 as it relates to maintenance of liquidity. However, certain funds restricted for construction that arguably should have been characterized as unrestricted, would have enabled the district to meet this covenant. Stability in the district''s financial metrics and improvement in liquidity levels consistent with the bond covenant are key to maintenance of the rating.
Financial results over the last five audited fiscal years have been marked by solid annual debt service (ADS) coverage and recovery of full service costs. ADS coverage remained above 2.0 times(as has been the case over the previous five years), but as operating expenditures increased by 20% from the previous fiscal year and the district continued with pay-as-you-go capital expenditures, cash reserves dropped from around $356,000 to just $187,000 (54 days of cash) at the end of fiscal 2008. This decline in unrestricted cash and investments in fiscal 2008 resulted in a technical violation of the district''s bond covenant to maintain at least 75 days of unrestricted cash and investments. While the violation is a concern, the district did maintain around $1.3 million in cash restricted for construction during the year that was not comprised of bond proceeds, which possibly should have been designated as unrestricted. Including these funds, days cash increases to over 430 days, well above the indenture requirements.
Debt ratios are low and capital needs over the intermediate term appear manageable. The district anticipates the issuance of an additional $2 million in bonds before the end of calendar 2009, which will be used to construct a new filter and office building. Proceeds will also be used to construct a new groundwater well, allowing for sufficient supplies over the long-term. Apart from these costs, all other capital needs over the next five years are related to repair and replacement of system assets and are expected to be funded from surplus cash flows.
The district provides retail water service to a primarily residential area of around 23,000 people in the Moss Bluff area. Customer account increases in recent years has been moderate, although there has been a slowing since fiscal 2007. Growth has been spurred by the proximity to Lake Charles (located around 10 miles south of the service area), where many residents commute for jobs. Wealth levels within Moss Bluff are above average and around 10% higher than the nation. Unemployment within Calcasieu Parish has fallen below state and national levels in recent years and was 7.3% for July 2009 compared to the state and national rates of 7.8% and 9.7%, respectively.
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