July 25, 2012 / 7:58 PM / 5 years ago

TEXT-Fitch raises Seacoast Utility Auth, Fla. revs

(The following statement was released by the rating agency)

July 25 - Fitch Ratings upgrades the following Seacoast Utility Authority, Florida (the authority) bonds: --Approximately $102.8 million water and sewer utility system revenue bonds, series 1989A, 2009A and 2009B (Build America Bonds), to 'AA' from 'AA-'; --Approximately $10.5 million water and sewer utility system refunding revenue bonds, series 2001, to 'AA' from 'AA-'. The Rating Outlook is revised to Stable from Positive. SECURITY The bonds are secured by a first lien pledge of net revenues of the system and investment income. KEY RATING DRIVERS FINANCIAL FLEXIBILITY: The upgrade reflects the system's high liquidity levels and sound debt service coverage (DSC) levels, both of which typically outperform budget estimates. Liquidity is expected to decline as the city plans to finance 100% of the capital improvement plan (CIP) with cash, but levels are expected to remain healthy. HIGH BUT DECLINING DEBT BURDEN: While debt levels are high, they should decline to more favorable levels given no other debt issuances are planned for the next five years. AFFORDABLE RATES: Rates remain very affordable and provide ample financial flexibility to the authority. ADEQUATE SUPPLY AND TREATMENT CAPACITY: The authority recently successfully renewed its water use permit, which will provide the system with sufficient water supplies and treatment capacity to meet demand requirements for the next five years. DIVERSE SERVICE AREA: The economic base of the service area is very stable and diverse and characterized by high wealth levels. CREDIT PROFILE STRONG LIQUIDITY & GOOD COVERAGE PROVIDE FINANCIAL FLEXIBILITY Financial metrics continued a positive trend with improved liquidity and stable debt service coverage. For fiscal year 2011, liquidity improved to over $50 million of unrestricted cash or the equivalent of over two years of operating cash. Senior lien annual debt service (ADS) coverage registered at 1.9 times (x), which was higher than the previously forecasted coverage of 1.8x. With the majority of fiscal year 2012 complete, the authority anticipates ADS coverage to once again register at 1.9x, outpacing the 1.7x fiscal 2012 budget estimate. Management projections, which appear reasonable and somewhat conservative, point to ADS coverage of over 1.5x through 2017. DECLINING DEBT BURDEN The authority's five-year capital improvement plan (CIP) totals a very manageable $53 million or $818 per customer. The current CIP will be funded with cash on a pay go basis, with a majority of the projects focused on the renewal and replacement of system assets. Debt levels are above average for the category at $1,421 per capita, compared to the 'AA' median average of $433. However, with no future borrowing planned, levels will continue to decline. RENEWED PERMIT & NEW TECHNOLOGY PROVIDE ADEQUATE SUPPLY Water is supplied to the authority by surficial aquifers and permitted through the South Florida Water Management District. The authority was issued a five-year water use permit on June 1, 2012, authorizing annual surficial aquifer withdrawal of 7,094 million gallons per year (19.4 mgd) and maximum monthly withdrawal of 668 million gallons (22.2 mgd). Permit levels provide for adequate water supply to meet the authority's demands, which has averaged over 14 mgd for the three fiscal years. The authority recently filed an application for a 20 year SFWMD water use permit application. The authority is requesting an increased surficial water allocation to allow for nanofiltration treatment losses of 20%, plus additional brackish water from the Floridan aquifer, to be treated by low pressure reverse osmosis at the new reverse osmosis/nanofiltration, to further offset those losses. The new plant will improve the quality of water delivered and represents a more efficient alternative to renewal and replacement of aging lime softening infrastructure. Furthermore the new plant will produce a recyclable byproduct and allow for the treatment of brackish Floridan aquifer water (an expected new water supply source for the authority). Current water treatment plant capacity exceeds demand by 58%. The new plant is anticipated to be complete and operational by fall of 2012. Wastewater is treated at a system owned and operated plant. The majority of effluent from the wastewater system is sold as recycled water. A deep injection well is utilized to dispose of the small portion of effluent that is not recycled. Current wastewater treatment capacity exceeds demand by 39%. GOOD RATE AFFORDABILITY Fitch sees the authority's rate structure and flexibility as positive credit factors. Rates are structured with a substantial fixed component which provide for stable revenue to support operations. The authority also has a history of raising water and sewer rates as needed. From 2007 - 2010 rates increased an average of 6.7%. In fiscal 2010 the authority's governing board voted to adjust rates annually based on a consumer price index (CPI). For fiscal year 2011 rates were indexed by 3.9% based on the CPI. Management does not foresee any increases to rates for fiscal 2013 due to the authority's strong cash position, but the governing board may vote to enact an annual rate adjustment. Even taking into account the recent rate hike, rates maintain tremendous flexibility, registering 1.1% of MHI. AUTHORITY BACKGROUND The authority was established in 1988 when it acquired the assets of a private water and wastewater utility. Created by an inter-local agreement between Palm Beach County, the city of Palm Beach Gardens, the village of North Palm Beach, and the towns of Juno Beach and Lake Park, the authority serves a 65 square-mile service area in northeastern Palm Beach County. The water and wastewater system (the system) provides retail service to over 34,000 and 30,000 water and wastewater connections, respectively, with the majority being residential connections. Economic prospects within the authority service area are favorable due to low unemployment rates and high wealth levels. (Caryn Trokie, New York Ratings Unit)

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