Fitch Ratings assigns an underlying 'A+' rating to
Florida Keys Aqueduct Authority, Florida's (the authority)
approximately $49 million water revenue refunding bonds, series 2006.
The bonds, expected to be insured by MBIA, are scheduled to sell
through negotiation with Citigroup during the week of Feb. 21. Bond
proceeds will be used to refund the authority's $7.4 million water
revenue refunding bonds, series 2001, refund a $10 million bank
qualified note, series 2005, and to provide $37 million toward various
capital improvements for the water system. At this time, Fitch also
affirms the 'A+' rating on the authority's $30.6 million in
outstanding water revenue bonds. The Rating Outlook is Stable.
The 'A+' rating reflects above-average wealth levels in the service area, adequate cash position (although likely to decline), sound legal provisions, and the built-out nature of the service area adding stability to system operations. Of primary credit concern are the expanded capital needs associated with providing alternative water sources to meet ongoing capacity constraints. The $112 million capital improvement program (CIP) will be primarily debt funded and increased debt levels will likely lead to reduced coverage. Above-average rates reflect the high cost of delivering services to this 130-mile island chain off of the Florida peninsula, and are somewhat offset by the above-average wealth levels in the service area.
The service area incorporates a small portion of southern Miami-Dade County and all of Monroe County, including the Florida Keys and a portion of the Everglades National Park. In fiscal 2005 the customer base totaled 45,435 and has been increasing incrementally over the last decade. While Monroe County's population of 78,284 in 2004 represents a 1.6% decline since the 2000 census, the tourism-based economy attracts an estimated 20,000 additional seasonal residents. The decline in population illustrates the built-out nature of the service area. Wealth levels in Monroe County have remained above average and the unemployment rate (3.3% in November 2005) continues to trend below the state and national averages.
The authority draws its water supply from the Biscayne Aquifer through 10 wells located near the Everglades National Park. Water is treated at a 23.79 millions of gallons per day (mgd) treatment facility located in Miami-Dade County, and is then transported through a transmission main running the length of the Florida Keys. The authority operates two additional small treatment plants and a back-up pump station in Key West to bring water back up the Keys, which provide for emergencies. Permitted withdrawal from the Biscayne Aquifer is limited to 19.93 mgd annually and a maximum daily allocation of 23.79 mgd because of the wellfield's proximity to the environmentally sensitive Everglades. Currently, the authority is at 87% capacity and projected to exceed capacity by 2010. Alternative measures to meet future demand include construction of an aquifer storage and recovery system and a reverse-osmosis water treatment plant that will draw from the Upper Floridian Aquifer.
Financial operations are sound, generating historically strong cash balances, and solid debt service coverage. Cash balances and debt service coverage is projected to decline through 2010 but should remain adequate. Projections prudently include conservative expenditure assumptions and the effects of additional system debt. Cash balances of $20.3 million in fiscal 2004 were strong, representing 335 days cash on hand. The system expects to draw down cash to support a small portion of the CIP but maintain levels above the $7.5 million policy minimum. Annual debt service coverage for the same period was adequate at 3.8 times (x) and is expected to drop through 2010.
The system's 2006-2010 CIP totals $112 million, representing a significant increase over prior years' capital spending. The increase is needed to secure additional capacity and provide alternative water sources. With only a nominal amount of impact fees expected due to the built-out nature of the service area, funding for the current CIP is almost entirely debt-funded. In addition to the series 2006 bonds, the system expects to issue $54 million in a series 2007 bond issuance with additional funding from cash and impact fees.
Legal provisions are sound and have been enhanced since the last parity bond issuance. Pledged revenues now include impact fees, although the built-out nature of the service area should only provide a marginal enhancement to debt service coverage. The additional bonds test and rate covenant require 1.10x coverage of MADS (maximum annual debt service) and annual debt service, respectively, without impact fees. A debt service reserve fund totaling 50% of MADS will be funded at closing.
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.
The 'A+' rating reflects above-average wealth levels in the service area, adequate cash position (although likely to decline), sound legal provisions, and the built-out nature of the service area adding stability to system operations. Of primary credit concern are the expanded capital needs associated with providing alternative water sources to meet ongoing capacity constraints. The $112 million capital improvement program (CIP) will be primarily debt funded and increased debt levels will likely lead to reduced coverage. Above-average rates reflect the high cost of delivering services to this 130-mile island chain off of the Florida peninsula, and are somewhat offset by the above-average wealth levels in the service area.
The service area incorporates a small portion of southern Miami-Dade County and all of Monroe County, including the Florida Keys and a portion of the Everglades National Park. In fiscal 2005 the customer base totaled 45,435 and has been increasing incrementally over the last decade. While Monroe County's population of 78,284 in 2004 represents a 1.6% decline since the 2000 census, the tourism-based economy attracts an estimated 20,000 additional seasonal residents. The decline in population illustrates the built-out nature of the service area. Wealth levels in Monroe County have remained above average and the unemployment rate (3.3% in November 2005) continues to trend below the state and national averages.
The authority draws its water supply from the Biscayne Aquifer through 10 wells located near the Everglades National Park. Water is treated at a 23.79 millions of gallons per day (mgd) treatment facility located in Miami-Dade County, and is then transported through a transmission main running the length of the Florida Keys. The authority operates two additional small treatment plants and a back-up pump station in Key West to bring water back up the Keys, which provide for emergencies. Permitted withdrawal from the Biscayne Aquifer is limited to 19.93 mgd annually and a maximum daily allocation of 23.79 mgd because of the wellfield's proximity to the environmentally sensitive Everglades. Currently, the authority is at 87% capacity and projected to exceed capacity by 2010. Alternative measures to meet future demand include construction of an aquifer storage and recovery system and a reverse-osmosis water treatment plant that will draw from the Upper Floridian Aquifer.
Financial operations are sound, generating historically strong cash balances, and solid debt service coverage. Cash balances and debt service coverage is projected to decline through 2010 but should remain adequate. Projections prudently include conservative expenditure assumptions and the effects of additional system debt. Cash balances of $20.3 million in fiscal 2004 were strong, representing 335 days cash on hand. The system expects to draw down cash to support a small portion of the CIP but maintain levels above the $7.5 million policy minimum. Annual debt service coverage for the same period was adequate at 3.8 times (x) and is expected to drop through 2010.
The system's 2006-2010 CIP totals $112 million, representing a significant increase over prior years' capital spending. The increase is needed to secure additional capacity and provide alternative water sources. With only a nominal amount of impact fees expected due to the built-out nature of the service area, funding for the current CIP is almost entirely debt-funded. In addition to the series 2006 bonds, the system expects to issue $54 million in a series 2007 bond issuance with additional funding from cash and impact fees.
Legal provisions are sound and have been enhanced since the last parity bond issuance. Pledged revenues now include impact fees, although the built-out nature of the service area should only provide a marginal enhancement to debt service coverage. The additional bonds test and rate covenant require 1.10x coverage of MADS (maximum annual debt service) and annual debt service, respectively, without impact fees. A debt service reserve fund totaling 50% of MADS will be funded at closing.
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.