Fitch Rates Florida Keys Aqueduct Authority, FL, $52.6MM Water Revs 'A+' Underlying

NEW YORK--(Business Wire)--
Fitch Ratings assigns an 'A+' rating to Florida Keys Aqueduct
Authority, FL's (the authority) approximately $52.6 million water
revenue refunding bonds, series 2008. The bonds are expected to price
the week of June 9, 2008 through a negotiated sale with proceeds being
used to refund outstand parity debt. At this time, Fitch also affirms
the 'A+' rating on the authority's approximately $134.1 million in
outstanding parity debt. The Rating Outlook is Stable.

The 'A+' rating reflects the authority's healthy financial
operations, sound legal provisions, and the strong wealth levels and
built-out nature of the service area adding stability to system
operations. Also considered are the authority's high rates
necessitated by the high cost of delivering service to the expansive
130-mile island chain off the Florida peninsula, although the rates
are generally absorbed by high resident wealth levels. The rating is
also tempered by the system's above-average leveraging, which Fitch
believes will increase notably with the inclusion of planned parity
debt issuances outlined in the system's five-year capital improvement
plan (CIP).

The authority provides potable water to a service area that
includes a small portion of southern Miami-Dade County and the
majority of Monroe County, including the Florida Keys and a portion of
the Everglades National Park. Growth in customer accounts has been
minimal, increasing by less than 1% annually over the last decade to
slightly more than 45,000 in fiscal 2007. Monroe County's ongoing,
though incremental, population decline occurring since the 2000 census
is attributable to its high cost of living and lack of developable
land. The economy is largely tourism based with an estimated 20,000
additional seasonal residents drawn to the attractive Florida Keys
annually. Income indicators are well above the state and national
average, and at 3.2% as of June 2007, the county's unemployment rate
continues to trend comfortably below the state and national averages.

The authority's primary water supply is derived from the Biscayne
Aquifer through 10 wells located near the Everglades National Park.
The system's only operational water treatment plant (WTP) is permitted
by the South Florida Water Management District (SFWMD) to treat 23.8
million gallons daily (mgd). Average daily demand declined in fiscal
2007 to 15.9 mgd from 17.3 mgd in the prior year, largely a result of
prolonged drought conditions and subsequent use restrictions. A new
20-year consumptive use permit issued by SFWMD has reduced the
authority's permitted withdrawal amounts from the Biscayne Acquifer to
17.9 mgd, representing a reduction of 2 mgd compared to historical
permitted levels. The authority plans to meet future demand by
constructing a reverse-osmosis (RO) water treatment plant that will
draw from the Upper Floridian Aquifer. Completion of the project is
scheduled for fiscal 2009.

Financial operations are sound, generating good liquidity and
solid debt service coverage. The system finished fiscal 2007 with
approximately $18.1 million in unrestricted cash, equal to 202 days
cash on hand, and net revenues (exclusive of impact fees) covered
annual debt service by a comfortable margin of 2.1 times (x).
Officials expect to continue maintaining cash reserves well above the
$7.5 million minimum required by policy. Healthy operating margins are
supported by annual rate increases adopted automatically and
determined according to an inflationary index. Despite the automatic
rate increases coupled with additional 5% increases implemented in the
current fiscal year and already adopted for fiscal 2009, debt service
coverage is projected to decline to a range of 1.5x-1.8x through
fiscal 2012 as annual debt service obligations grow. The authority's
financial forecast includes parity debt issuances in fiscal years 2009
and 2010.

The system's 2008-2012 CIP is manageable, totaling almost $140
million. Almost one-fourth of planned spending is for the construction
of the RO WTP and deep injection well and supply. The balance of the
CIP includes the construction of a replacement administration
building, implementation of a reclaimed water system, and routine
maintenance and repairs of existing plant assets. About 75% of the CIP
will be debt-funded. In addition to the current offering, the
authority tentatively expects to issue approximately $15 million-$18
million annually in fiscal years 2009, 2010, and 2012. The balance of
the CIP will be financed with cash balances and impact fee revenue.

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.

Fitch Ratings, New York
Christopher Hessenthaler, +1-212-908-0773
Amy Laskey, +1-212-908-0568
Christopher Kimble, +1-212-908-0226 (Media Relations)

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