TEXT - Fitch rates New York's Suffolk County Water Authority revs

Tue Jan 15, 2013 4:46pm EST

Related Topics

Jan 15 - Fitch Ratings has assigned an 'AAA' rating to the following Suffolk
County Water Authority, New York (the authority) bonds: 

--Approximately $60 million water system revenue bonds, series 2013A refunding. 

The bonds are expected to be sold via competitive sale the week of Feb. 4. 
Proceeds will be used to refund outstanding senior lien bonds for cost savings 
with no extension of maturity dates.  

In addition, Fitch affirms the following ratings: 

--$458.9 million in outstanding water system revenue bonds (senior lien) at 
'AAA';

--$72.6 million in outstanding water system revenue bonds (subordinate lien) at 
'AAA';

--$150 million in outstanding BANs, 2013A and 2013B (subordinate lien) at 'AAA';

--$50 million in outstanding BANs, 2011B (subordinate lien) at 'F1+'. 

The Rating Outlook is Stable. 

SECURITY 

The bonds are secured by a senior lien on the authority's net revenues. 
Subordinate lien obligations, which include outstanding BANs, are payable from 
net revenues of the authority after payment of senior lien obligations. 

KEY RATING DRIVERS 

STABLE SERVICE AREA WITH AMPLE SUPPLY: The authority benefits from a large, 
affluent service area and an abundant source of high-quality water that requires
minimal treatment and cost to produce. The recent impact of Hurricane Sandy on 
the authority's operations and assets was nominal. 

CONSISTENTLY POSITIVE OPERATING RESULTS: Favorable operating results are 
demonstrated by consistently robust debt service coverage levels and strong 
liquidity. 

AMPLE FLEXIBILITY: Independent rate-setting authority and affordable user rates 
provide significant flexibility. 

LIMITED FUTURE BORROWING NEEDS: Leverage ratios are somewhat high for the given 
rating category, although capital needs are manageable, and the mature, largely 
built-out service area does not pose any growth-related risks. Borrowing plans 
over the medium term are not expected to result in a meaningful increase in 
leverage. 

WELL-MANAGED DEBT PORTFOLIO: The 'F1+' short-term rating assigned to outstanding
subordinate lien BANs, 2011B considers the strong credit quality of the 
authority and its expected ability to issue future bonds to refinance 
outstanding BANs. The 'AAA' rating on outstanding subordinate lien bonds also 
reflects the moderate (approximately 15%) amount of subordinated debt 
outstanding relative to the system's overall debt profile. 

WEAK LEGAL COVENANTS: The rate covenant, which essentially requires just 
sum-sufficient coverage of debt service obligations, is considered weak. 

CREDIT PROFILE 

CONSISTENTLY SOUND OPERATING RESULTS 

The authority's financial performance continues to exhibit strong operating 
margins, good debt service coverage and healthy cash balances. Dry weather 
conditions persisted throughout much of fiscal 2011, prompting sizeable growth 
in consumption that drove a 15% increase in operating revenue and favorable 
annual debt service (ADS) coverage of 2.6x and 2.0x on senior-lien and all-in 
obligations, respectively. 

The adoption of modest rate hikes leading up to and in the midst of fiscal 2012 
prompted ADS coverage to improve further, rising to 2.3x on an all-in basis 
based on audited financial results. Liquidity remains substantial as the ending 
balance of unrestricted cash in fiscal 2012 equaled about 650 days cash on hand.


The authority's low rates provide additional flexibility that Fitch believes 
will be necessary to meet escalating debt service costs going forward. After 
holding charges flat in fiscal 2010 and through the first 10 months of fiscal 
2011, multiple rate hikes of 3.75% were implemented at the end of fiscals 2011 
and 2012. The average residential bill for customers of the authority remains 
comfortably below $30 or less than 0.5% of median household income. 

The authority's financial forecast through fiscal 2017 shows satisfactory ADS 
coverage on an all-in basis at 1.7x. Assumptions built into the forecast, which 
include the aforementioned rate hikes, additional debt issuance, nominal growth 
in customer accounts and customer demand in line with more recent trends, appear
reasonable in Fitch's view. 

MANAGEABLE CAPITAL PROGRAM 

Capital needs, totaling $294.6 million over the next five years, consist of main
installation, continued implementation of an automatic meter reading system 
(AMR), upgrades and improvements to treatment facilities, and various 
remediation projects. The authority expects to fund its capital program from a 
2011 note issuance, an additional $100 million in new money bonds planned for 
2013, and cash reserves. Projected cash flows appear strong and should yield 
sufficient excess revenue to meet planned pay-go. 

HIGH DEBT LEVELS 

Debt levels are moderately high for the given rating category. Total debt 
outstanding as a percentage of net assets, funds available for debt service 
(FADs) and system equity was roughly twice the median for each ratio in fiscal 
2012, although ADS continues to consume under 20% of gross revenues and the 
authority's affordable user charges provide ample flexibility. Prospectively, 
future debt service costs are scheduled to escalate significantly over the next 
several years, which could pressure operating margins and diminish ADS coverage 
assuming any future rate hikes do not keep pace. 

VERY STABLE SERVICE TERRITORY 

The authority operates one of the largest groundwater systems in the country and
maintains an abundant raw water supply from deep aquifers beneath Long Island, 
NY. The authority provides water service to 85% of the estimated 1.5 million 
residents of the county, which encompasses the eastern two-thirds of Long 
Island. With the service area largely built out, management budgets for minimal 
customer growth of less than 1% annually. The county's economy benefits from its
proximity to the New York City metropolitan area as well as from its own broad 
employment base. Consequently, unemployment rates typically trend below the 
state and the nation while income indicators rank comfortably above the state 
and nation.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.