Fitch Affirms Cary, North Carolina's Combined System Rev Bonds at 'AAA'; Outlook Stable

SAN FRANCISCO--(Business Wire)--
Fitch Ratings takes the following rating action on Cary, North Carolina's
combined utility system as part of its continuous surveillance effort:

--Approximately $57 million combined system revenue bonds, series 2001, 2004,
2007, affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Financial performance has been very strong with consistently strong debt
service coverage of its revenue bonds and strong liquidity levels.

--Financial modeling efforts are robust and used to evaluate various rate and
growth scenarios on an ongoing basis.

--Sufficient water supply and treatment capacity to meet projected growth.

--Capital needs, in addition to growth-related projects, require the
construction of a third wastewater treatment plant in order to meet state permit
requirements.

--Rate increases, particularly on sewer rates to fund construction of the third
treatment plant, have been sizable, although rates remain affordable.

--The town's economy is strong and the service territory has long-term potential
for continued growth and development.

KEY RATING DRIVERS:

--Construction of the Western Wake Regional Wastewater Management Facility (the
town's third wastewater treatment plant) is needed to comply with state
requirements for the town to begin discharging flow into the Cape Fear Basin,
the water basin from which it draws its water supply. Construction is expected
to begin in 2011, which is delayed from earlier expectations.

--Rate increase began to be phased in five years ago and sizable rate increases
are expected to continue to fund the additional debt and loans needed for the
town's capital requirements.

--Debt levels are expected to rise with the revenue bonds and general obligation
(GO) debt issued to fund construction of the wastewater treatment plant but debt
service coverage, including non-revenue bond obligations, is expected to remain
strong and supportive of the 'AAA' rating.

SECURITY:

The bonds are secured by the net revenues of the Town of Cary's combined utility
system.

CREDIT SUMMARY:

The Town of Cary provides water and sewer service to an area with approximately
49,000 customers in and around the communities of Cary and Morrisville.
Morrisville merged into the Cary system in 2006, having previously been a
wholesale customer. Cary also provides service to the Raleigh-Durham Airport.

The water supply is drawn from Jordan Lake. Even with the service areas recent
growth, the water supply still provides almost twice the system's average water
demand. Treatment is provided by the Cary/Apex water treatment plant. Cary owns
77% of the treatment plant and operates the facility. Recent modifications at
the plant were completed to comply with new state drinking water rules in 2009.
Due to slower growth expectations in the region, the next capacity expansion of
the plant, to 56 million gallons per day (MGD) from 40 MGD, has been delayed
from 2014 to 2016.

Wastewater treatment is provided by two existing plants that provide tertiary
treatment. Cary continues to work toward completion of a third wastewater
treatment facility, the Western Wake Wastewater Management Facility. The
facility is being built with two other communities, Apex and Holly Springs, and
will meet Cary's obligation to begin discharging reclaimed water back to the
Cape Fear water basin, the basin from which it draws its water supply. The
facility will not be on-line to meet Cary's discharge requirements set by the
state by the required date of January 2011. In the interim, Cary has an
agreement with Durham County to treat a portion of its wastewater to meet the
discharge requirements.

Capital needs of the combined utility relate primarily to the construction of
the Western Wake Facility and the anticipated expansion of the water treatment
plant in 2016. Other capital requirements include maintenance and growth-related
needs as well as installation of advanced meter infrastructure over the next 18
months. The system has a $320 million capital plan over the next five years,
with approximately 66% of the cost expected to be financed through additional
debt - a combination of revenue bonds, GO bonds, and state loans. Debt levels
will rise significantly but Cary has been phasing in the rate increases to
support the capital spending. Additional annual rate increases are anticipated
through the next five years. Despite sizable past rate increases, rate remain
affordable with a combined bill at less than 1% of median household income.

Financial performance remains strong. Debt service coverage of revenue bonds was
4.1 times (x) in fiscal year (FY) 2009 and all-in debt service coverage
(including GO bonds issued for utility purposes) was 1.8x. Fitch's analysis
focuses on all-in coverage since it is the city's intent and practice to pay the
GO bonds from water and sewer net revenues, although the revenues are not
legally pledged. Cary issued $25 million in GO bonds in June 2009 that are
supported by the combined utility system. The city has authorization for another
$85 million in GO bonds, approved in 2005, to support the utility system. All-in
debt service coverage may decline to around 1.6x at the end of the five-year
capital plan, depending on the pace of spending on the Western Wake facility,
which would be considered low. Coverage of revenue bonds is expected to remain
strong, above 5.0x.

Liquidity remains consistently strong. The utility's operating fund of
approximately $40 million at the end of fiscal 2009 provided 471 days cash.
Including the system's substantial unrestricted funds dedicated to capital,
unrestricted cash was $178 million, or 2,092 days cash.

Applicable criteria available on Fitch's website at www.fitchratings.com:

--Water and Sewer Revenue Bond Rating Guidelines, dated Aug. 6, 2008.

Additional information is available at www.fitchratings.com.

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Fitch Ratings
Kathy Masterson, +1-415-732-5622 (San Francisco)
Kelly McGary, +1-813-224-0492 (Tampa)
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

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