Fitch Ratings assigns an 'AA' rating to $54.5 million
City of Tacoma, Washington sewer revenue and refunding bonds, series
2006. Fitch also affirms its 'AA' rating on approximately $90.5
million of outstanding parity lien debt. The bonds are expected to be
sold on or about June 26 through negotiation with UBS Investment Bank.
The Rating Outlook is Stable.
Certain bond proceeds, along with $1.8 million in net premium, will fund $40 million in capital improvement projects identified in the city's capital improvement plan. Remaining proceeds will be used to advance refund $15.2 million in series 2001 revenue bonds maturing 2016 through 2021. The refunding achieves net present value savings close to 5.1% of refunded par.
The 'AA' rating reflects Tacoma's strong financial operations and capital asset management, high liquidity levels, and excellent financial flexibility. These strengths are slightly offset by on-going capital expenditures related to national and state Sanitary Sewer Overflow (SSO) regulations. The system benefits from diverse residential and commercial customer bases, and undertakes foresighted infrastructure development planning, as exhibited in its five-year capital improvement plan. Combined wastewater and surface water rates are affordable, compared with peer systems in Washington and the nation and should remain competitive with these areas. The utility's rate plan schedule provides the city with ample revenues sufficient to support its capital program and related debt. Debt service coverage is very strong.
The system provides wastewater and surface water services for the city of Tacoma and portions of five other municipalities including Pierce County. Wastewater service is provided to 92,900 accounts and surface water service is provided to 72,139 accounts, representing a residential population of over 198,100. User concentration is minimal with the top 10 customers providing only 7.7% of revenues. The wastewater system consists of approximately 800 miles of sewer pipes, two treatment plants, and 47 pump stations. The system's five-year capital improvement program for wastewater and surface water services totals approximately $171 million and $59 million, respectively, a high percentage of which is financed by the system's cash reserves.
The five-year capital improvement program addresses capacity expansion at Tacoma's Central Treatment Plan and increases the permitted peak hydraulic capacity from 78 millions of gallons per day (mgd) to 150 mgd. This expansion will bring hydraulic capacity up to meet the plant's organic treatment capacity, thereby making the plant compliant with the federal Sanitary Sewer Overflow regulations. The most significant capital expenditure for the surface water utility is the city's share of cleanup costs for the Thea Foss Waterway.
The system's financial position is very strong. Net revenues in fiscal 2005 were $26.1 million, providing a 2.5 times (x) debt service coverage. Accounting for a cash defeasance of $9.1 million in series 1994 maturities, maximum annual debt service (MADS -- first occurring in 2009) coverage is 3.3x. No additional near-term bonded debt is anticipated. Cash reserves total $54.0 million, including a $22.5 million rate stabilization fund. The bonds are secured by revenues after operations and maintenance payments. Although the rate covenant is 1.3x, the city's sound and prudent fiscal management policies set an internal target of 1.7x. Management policies are strong and help institutionalize best practices.
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.
Certain bond proceeds, along with $1.8 million in net premium, will fund $40 million in capital improvement projects identified in the city's capital improvement plan. Remaining proceeds will be used to advance refund $15.2 million in series 2001 revenue bonds maturing 2016 through 2021. The refunding achieves net present value savings close to 5.1% of refunded par.
The 'AA' rating reflects Tacoma's strong financial operations and capital asset management, high liquidity levels, and excellent financial flexibility. These strengths are slightly offset by on-going capital expenditures related to national and state Sanitary Sewer Overflow (SSO) regulations. The system benefits from diverse residential and commercial customer bases, and undertakes foresighted infrastructure development planning, as exhibited in its five-year capital improvement plan. Combined wastewater and surface water rates are affordable, compared with peer systems in Washington and the nation and should remain competitive with these areas. The utility's rate plan schedule provides the city with ample revenues sufficient to support its capital program and related debt. Debt service coverage is very strong.
The system provides wastewater and surface water services for the city of Tacoma and portions of five other municipalities including Pierce County. Wastewater service is provided to 92,900 accounts and surface water service is provided to 72,139 accounts, representing a residential population of over 198,100. User concentration is minimal with the top 10 customers providing only 7.7% of revenues. The wastewater system consists of approximately 800 miles of sewer pipes, two treatment plants, and 47 pump stations. The system's five-year capital improvement program for wastewater and surface water services totals approximately $171 million and $59 million, respectively, a high percentage of which is financed by the system's cash reserves.
The five-year capital improvement program addresses capacity expansion at Tacoma's Central Treatment Plan and increases the permitted peak hydraulic capacity from 78 millions of gallons per day (mgd) to 150 mgd. This expansion will bring hydraulic capacity up to meet the plant's organic treatment capacity, thereby making the plant compliant with the federal Sanitary Sewer Overflow regulations. The most significant capital expenditure for the surface water utility is the city's share of cleanup costs for the Thea Foss Waterway.
The system's financial position is very strong. Net revenues in fiscal 2005 were $26.1 million, providing a 2.5 times (x) debt service coverage. Accounting for a cash defeasance of $9.1 million in series 1994 maturities, maximum annual debt service (MADS -- first occurring in 2009) coverage is 3.3x. No additional near-term bonded debt is anticipated. Cash reserves total $54.0 million, including a $22.5 million rate stabilization fund. The bonds are secured by revenues after operations and maintenance payments. Although the rate covenant is 1.3x, the city's sound and prudent fiscal management policies set an internal target of 1.7x. Management policies are strong and help institutionalize best practices.
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.