Fitch Ratings affirms the following ratings issued by the City of Ocala, Florida:
--$24,165,000 water and wastewater system revenue bonds at ''AA-'';
--$143,520,000 utility system revenue bonds at ''A+''.
The water and wastewater bonds are secured by a pledge of net revenues of the water and wastewater system. The utility system bonds are secured by a pledge of net revenues of the electric system and a subordinate lien on water and wastewater system revenues. The Rating Outlook is Stable.
The ratings reflect the strength of the pledged revenues, consistent financial performance, and limited capital needs. The Stable Outlook focuses on the likelihood of continued strong financial performance despite increased pressure on the local economy, including the recent bankruptcy of Taylor, Bean and Whitaker, a large employer.
Financial performance has historically been strong, especially at the water and wastewater system. In fiscal year 2008, debt service coverage was equal to 4.03 times (x) for the water bonds and 2.86x for the utility bonds. Despite a decline in the utility''s cash position between 2008 and 2007 associated with increased capital expenditures, the utility''s 111 days of unrestricted cash on hand remains consistent with the rating. Weakness in the local economy has put some pressure on collections, which has led the utility to take steps to limit losses. Going forward, Fitch expects to see the utility continue to practice good financial policies such as timely recovery of costs, assessment of cost of services and risk management.
The city''s water and sewer utility system maintains an ample supply of water from the Upper Floridian Aquifer, significant treatment capacity from its existing facilities and a very strong cash position, limiting the expectation of additional debt-financed capital expenditures going forward. Water and sewer rates are slightly above average although the utility has not implemented rate increases in either of the last two budgets.
The electric system receives all of its power from Florida Municipal Power Agency''s All Requirements Project (ARP; rated ''A+'' by Fitch). The ARP allows participants to pool their resources and utilize generation more efficiently, as well as mitigate some key risks associated with power supply management (including fuel hedging, wholesale market risks, and single unit outage risk). Any new generating units will be financed by the ARP, limiting capital expenditures to be financed on Ocala''s balance sheet. Above average concentration in natural gas-based resources and uneconomic hedges resulted in above average costs to ARP members over the past year. Rates for the electric system are currently in line with other ARP members, but slightly higher than the state average.
The combined utility system (electric, water, and sewer) serves a total of 50,000 people. The electric system accounts for 87% of the combined utility system revenues. The electric utility''s 161 square mile service territory includes the corporate limits of the City of Ocala and some unincorporated portions of Marion County.
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Contacts:
Fitch Ratings, New York
Drake Richey, +1-212-908-0325
Michael
Rinaldi, +1-212-908-0833
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com