Fitch affirms the 'AA-' rating on the following bonds of the Nassau County Sewer and Storm Water Finance Authority:
--Approximately $154.6 million system revenue bonds, 2004 series B and 2008 series A.
The Rating Outlook is Stable.
SECURITY
Outstanding parity bonds are secured by a gross revenue
pledge of authority assets, funds and revenues set by Nassau County
pursuant to a financing and acquisition agreement between the county and
the authority. The county has covenanted with the authority in the
agreement to levy assessments sufficient to enable the authority to pay
debt service on authority bonds first, then pay debt service on
outstanding bonds issued by or on behalf of the county for sewer or
storm water purposes, fund operating expenses of the county's sewer and
storm water resources district and pay the authority's operating
expenses. Outstanding authority bonds do not carry a debt service
reserve.
KEY RATING DRIVERS
ROBUST OPERATING RESULTS: Annual operating results continue to result in exceptionally high senior lien annual debt service (ADS) coverage, sound all-in ADS coverage and ample liquidity.
STRONG SECURITY FEATURES: The authority's bonds are secured by a gross lien on sewer and storm water revenues, which are remitted directly to the trustee, thereby isolating pledged revenues from Nassau County's operations.
STABLE SERVICE AREA: Pledged revenues are derived from a stable service territory that includes a large and diverse tax base with good economic and wealth indicators.
BELOW AVERAGE RATE COVENANT: Fitch considers the rate covenant relatively weak as it permits the inclusion of authority reserves in order to achieve sum sufficient coverage of all related debt obligations and operating costs.
CREDIT PROFILE
New York State established the authority in 2003 in
order to achieve sizeable savings to Nassau County for historical and
future sewer and storm water capital investments. (Fitch rates Nassau
County's general obligation bonds 'A+' with a Stable Outlook.) The
authority's purpose is limited to refinancing outstanding sewer and
storm water debt issued by or on behalf of the county and financing
future sewer and storm water projects in an amount not to exceed $350
million.
The authority's revenues are almost entirely derived through the levy by the county of assessments for sewer and storm water services. The assessments are collected on the property tax bill and the county has directed each city and town receiver of taxes and assessments to pay all assessments directly to the trustee for the authority's bonds. The authority retains sufficient funds to service all debt (including county bonds) and pay its operating expenses, which are a nominal amount each year. Excess funds are remitted to the Nassau County Sewer and Storm Water resources District to fund its operating expenses.
The county continues to have the ability to issue county debt to finance sewer and storm water projects, either directly or by utilizing state loans. If the county issues debt for such purposes, the assets being financed will be transferred to the authority and the authority will be responsible to make debt service payments for such debt on behalf of the county.
Senior lien and all-in ADS coverage has remained at a high level each year, driven by the gross revenue pledge to bondholders. Senior lien ADS coverage exceeded 7.0 times (x) in fiscal years 2009-2011 and on an all-in basis, debt service coverage has stayed comfortably above 2.0x since the authority's creation. Similar results are included in the authority's adopted budget for fiscal 2012. Fitch notes that the continuation of the authority's robust coverage levels will depend on the county's willingness and ability to adequately adjust future assessments to meet its covenanted obligations.
Liquidity on a combined basis is ample. Unrestricted cash on the authority's balance sheet totaled $22 million at the close of fiscal 2010. Pursuant to the agreement, the county is also required to maintain an operating and maintenance reserve fund for the district in an amount equal to a satisfactory 25% of budgeted operating expenses of the district for each fiscal year.
The utility system's service area is coterminous with the county. The county has a broad, diverse economy and well above-average economic indicators, including high income levels (per capita personal income in 2009 was 160% of the nation's), well below-average unemployment (7.1% for 2011), and high per capita market value ($153,731) despite recent tax base declines.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by Creditscope and IHS Global Insight.
Applicable Criteria and Related Research:
--'Revenue-Supported
Rating Criteria' (June 20, 2011);
--'Water and Sewer Revenue Bond
Rating Guidelines' (Aug. 10, 2011);
--'2012 Water and Sewer
Medians' (Dec. 8, 2011);
--'2012 Outlook; Water and Wastewater
Sector' (Dec. 8, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S.
Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647331
2012
Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657111
2012
Outlook: Water and Sewer Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657110
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