As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Prince George's County, MD (the county) solid waste revenue bonds:
--$3.6 million outstanding solid waste management system refunding revenue bonds, series 2003, upgraded to 'AA' from 'AA-'.
The Rating Outlook is Stable.
SECURITY
The series 2003 bonds are payable from gross revenues of the county's solid waste system. To the extent that gross system revenues are insufficient to pay the cost to operate and maintain the system, the county is required under the trust indenture to pay such operation costs from its general fund or any available funds. The bonds do not constitute general obligations of the county to which its full faith and credit are pledged. Bonds are additionally supported by a cash funded debt service reserve fund. Additional bonds are subject to a 1.20 times (x) coverage test.
KEY RATING DRIVERS
--High percentage of system revenues derived from system fee revenues included on property tax bills.
--Strong debt service coverage from gross and net revenues on revenue bonds and all other bonds supported by system revenues.
--A covenant by the county (Fitch GO rating of 'AAA', Stable Outlook) to subsidize the cost of system operations and maintenance should solid waste revenue be insufficient to do so.
--Robust economy with strong growth prospects benefiting from a central location in the Washington D.C. area.
--Long term contractual arrangements with private haulers to ensure steady waste flow.
--Competitive tipping fees.
--Satisfactory legal covenants protect bondholders.
CREDIT PROFILE
The upgrade to the solid waste system revenue bonds reflects the system's strong financial operations derived largely from revenues collected on the property tax bill, ample surplus revenues to service debt, adequate reserves and management's demonstrated willingness to raise rates.
Despite declines in expected fiscal 2011 revenues compared to fiscal 2010 and 2009, estimated net revenues available to pay future debt remain strong. Tonnage has declined in recent years due to reduced economic activity and increased recycling efforts, but Fitch expects the county's economically diverse service area will continue to support good waste flow going forward. Bondholders also benefit from the county's covenant to subsidize solid waste operations as needed which Fitch views as a credit positive.
The series 2003 revenue bonds are payable from a gross lien on solid waste revenues which in fiscal 2010 were derived 70% from combined refuse collection fees, system benefit fees, and recycling fees collected on the property tax bill. Tip fees make up the bulk of other system revenues. Haulers are paid for residential collection, net of any tip fees owed to the county.
Legal protections for revenue bonds are satisfactory with a rate covenant and additional bonds test of 1.2 times (x). Fitch notes the county has been issuing GO bonds to support system improvements since 2003 which has contributed to very low system leverage. The county has indicated it may return to direct revenue supported bonds as it evaluates financing alternatives for future capital needs. The county has identified $59 million in solid waste projects, including $22 million for landfill construction and $34 million for a new waste transfer station.
For fiscal year 2010, gross coverage on bonds supported solely by system operating revenues was equal to a very high 16.7x and net coverage equaled a strong 1.83x excluding use of any reserve fund balances. Debt service drops from $5.0 million in fiscal 2010 to $1.9 million in fiscal years 2011 through 2013 resulting in even higher expected coverage in those years.
Coverage on maximum annual debt service on all system obligations, which includes the revenue bonds, county GO bonds issued for solid waste purposes, and certain equipment capital leases, from fiscal 2010 net revenues, including interest income, is adequate at 1.39x.
Reserve levels are satisfactory as of June 30, 2010 with unrestricted cash of $5.4 million, and $9 million held in the system's restricted capital and maintenance fund.
The county's solid waste system is assured of a waste stream from 165,000 households within the incorporated and unincorporated area of Prince George's County through seven-year contracts with over 20 different private haulers with staggered expiration dates. All contracted waste is delivered to the county landfill, where haulers pay a tip fee of $59 per ton for fiscal 2011, up from $54 a ton in fiscal 2010. Commercial waste is not collected by the county, but may be tipped at the landfill. The tip fee is regionally competitive compared to other tonnage fees charged by neighboring counties.
Deliveries to the landfill have declined in recent years due to slower economic activity and increased recycling efforts with an estimated 325,000 tons generated in fiscal 2011. The county last amended its 10 year solid waste plan in 2008 and approved another solid waste transfer station as the landfill is nearing capacity. Over the next few years, the county plans to consider additional landfill alternatives including green initiatives that may extend landfill capacity life.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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