Fitch has assigned an 'AA' rating to Garland, Texas'
$16.2 million water and sewer system revenue bonds, series 2006. Fitch
also affirms the 'AA' rating on the city's $101.8 million of
outstanding parity water and sewer system revenue bonds. The bonds are
scheduled to sell the week of March 13 via a syndicate managed by RBC
Dain Rauscher Inc. The Rating Outlook remains Negative.
The 'AA' rating reflects the water and sewer system's (the system) solid historical financial results, assured long-term water supply, strong management, and economically diverse and mature service area. The Negative Rating Outlook reflects the deterioration of liquidity in recent years, primarily as a result of unseasonably cool and wet weather conditions. Recognizing the need to enhance financial flexibility, the city council approved a series of rate hikes in 2005. These adjustments are expected to restore system liquidity over the next few years. Fitch views the council's actions positively and believes the return to more favorable reserve levels is necessary to maintain the high-grade rating.
The water system serves approximately 66,500 city customers. The city purchases its water on a wholesale basis under a perpetual contract from the North Texas Municipal Water District (NTMWD), of which Garland is a member city. Existing and projected water supplies from NTMWD reportedly are sufficient to meet all customer demands through 2030. The wastewater system serves over 64,100 customers within the city, as well as portions of six other cities, including the city of Dallas.
Financial performance has been sound since fiscal 1999, with the city experiencing healthy coverage and operating margins. Through fiscal 2010, the city projects continued strong annual debt service coverage of no less than 2 times based on hikes approved by the council and certain future rate assumptions. Liquidity levels, which peaked in fiscal 2000 at about 240 days cash on hand, have declined steadily as a result of increased pay-as-you-go funding for capital expenditures and moderate weather patterns, and were a low 24 days in fiscal 2005 (unaudited), well below the average for similarly rated credits. As normal weather patterns prevail and rate adjustments generate additional margin, reserves should return to more reasonable levels.
Rates, which remained largely stable from fiscal years 1991-2002, experienced moderate increases over the last few years. To bolster liquidity levels and ensure coverage levels in light of the capital improvement program (CIP), the city enacted a three-year plan of double-digit rate hikes for fiscals 2006-2008. While rates are now above average for the area, Fitch believes that the city is committed to ensuring the credit quality of the system.
Capital needs are extensive at $192 million through fiscal 2010. The majority of all capital projects (72%) are earmarked for sewer system improvements that will ensure compliance with new and enhanced regulatory and operational standards. Funding for the CIP is expected to be derived almost exclusively from debt issuance. While debt levels per customer will rise through the projection period, the city's practice of issuing debt with a 20-year term should keep levels in the moderate range.
Garland has benefited from its location within the Dallas-Fort Worth metropolitan area. Manufacturing and distribution remain the city's primary economic engines, and the city's industrial market reportedly is the second largest in the Dallas-Fort Worth metroplex. The unemployment rate in Garland historically has been below regional, state, and national averages. Local wealth levels, as measured by per capita buying income and median household income, approximate both state and national averages.
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 'AA' rating reflects the water and sewer system's (the system) solid historical financial results, assured long-term water supply, strong management, and economically diverse and mature service area. The Negative Rating Outlook reflects the deterioration of liquidity in recent years, primarily as a result of unseasonably cool and wet weather conditions. Recognizing the need to enhance financial flexibility, the city council approved a series of rate hikes in 2005. These adjustments are expected to restore system liquidity over the next few years. Fitch views the council's actions positively and believes the return to more favorable reserve levels is necessary to maintain the high-grade rating.
The water system serves approximately 66,500 city customers. The city purchases its water on a wholesale basis under a perpetual contract from the North Texas Municipal Water District (NTMWD), of which Garland is a member city. Existing and projected water supplies from NTMWD reportedly are sufficient to meet all customer demands through 2030. The wastewater system serves over 64,100 customers within the city, as well as portions of six other cities, including the city of Dallas.
Financial performance has been sound since fiscal 1999, with the city experiencing healthy coverage and operating margins. Through fiscal 2010, the city projects continued strong annual debt service coverage of no less than 2 times based on hikes approved by the council and certain future rate assumptions. Liquidity levels, which peaked in fiscal 2000 at about 240 days cash on hand, have declined steadily as a result of increased pay-as-you-go funding for capital expenditures and moderate weather patterns, and were a low 24 days in fiscal 2005 (unaudited), well below the average for similarly rated credits. As normal weather patterns prevail and rate adjustments generate additional margin, reserves should return to more reasonable levels.
Rates, which remained largely stable from fiscal years 1991-2002, experienced moderate increases over the last few years. To bolster liquidity levels and ensure coverage levels in light of the capital improvement program (CIP), the city enacted a three-year plan of double-digit rate hikes for fiscals 2006-2008. While rates are now above average for the area, Fitch believes that the city is committed to ensuring the credit quality of the system.
Capital needs are extensive at $192 million through fiscal 2010. The majority of all capital projects (72%) are earmarked for sewer system improvements that will ensure compliance with new and enhanced regulatory and operational standards. Funding for the CIP is expected to be derived almost exclusively from debt issuance. While debt levels per customer will rise through the projection period, the city's practice of issuing debt with a 20-year term should keep levels in the moderate range.
Garland has benefited from its location within the Dallas-Fort Worth metropolitan area. Manufacturing and distribution remain the city's primary economic engines, and the city's industrial market reportedly is the second largest in the Dallas-Fort Worth metroplex. The unemployment rate in Garland historically has been below regional, state, and national averages. Local wealth levels, as measured by per capita buying income and median household income, approximate both state and national averages.
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.