TEXT-Fitch affirms DuPage County, Ill. waterworks, sewerage revs

Wed Jan 23, 2013 1:46pm EST

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Jan 23 - Fitch Ratings affirms the ratings on DuPage County's outstanding
waterworks and sewerage project revenue bonds as follow:

--$6.48 million first lien bonds, series 2008A at 'AAA';
--$6.47 million second lien bonds, series 2008B at 'AA+'.

The Rating Outlook is Stable.

The County has an additional $2.2 million in parity first lien bonds
outstanding, series 2012 that are not rated by Fitch.

SECURITY

Senior debt is secured by a first lien on pledged net revenues. Second lien
bonds are secured by a second lien on net revenues. The County has third lien
debt in the form of loans from the Illinois Environmental Protection Agency
(IEPA).

KEY RATING DRIVERS

STRENGTHENED FINANCIAL PERFORMANCE: Financial performance has strengthened to
levels in line with the ratings following annual rate increases over the past
few years. Debt service coverage is expected to remain strong and liquidity is
average.

STRONG RATE FLEXIBILITY: Fitch views rate flexibility as ample and the combined
bill remains affordable at around 1% of median household income.

LOW DEBT; LIMITED CAPITAL NEEDS: Debt is low and amortization is rapid. Capital
needs are limited and no additional debt is anticipated.

DECLINING DEMAND: Water and related sewerage billed usage have declined in the
past few years. Usage appears strong in 2012 but a predominantly volumetric rate
structure remains dependent on consistent usage patterns.

LIMITED SERVICE AREA: The County provides service to limited areas within the
unincorporated county. Wastewater treatment is provided to around 35,000
customers while water service is only provided to around 3,000 customers.

CREDIT PROFILE

STABLE OPERATIONS TO LIMITED SERVICE AREA IN COUNTY

DuPage County's Department of Public Works operates the water and sewer system
and is responsible for service to areas that are not offered service by other
local governments within the county. The population served by the system is
approximately 160,000, representing about 17% of the county total. The majority
of service provided by the system is wastewater. Growth is limited except from
septic system conversions. The water system serves six separate small systems
within the county with a combined customer count of approximately 3,000. Water
supply is provided by a full requirements contract with the DuPage Water
Commission that purchases treated water from the City of Chicago. Wastewater
treatment capacity is adequate although the plants are older. Both systems are
in regulatory compliance with limited future capital requirements.

RATE INCREASES BRING WATER RATES INTO PARITY IN 2013

Over the past five years, the county converted its water supply to Lake Michigan
water. Water supply had previously been provided from well water, which is
currently maintained as a back-up supply. The conversion to Lake Michigan water
preserves ground water levels and provides improved water quality. The County
had phased in rates over the past few years to bring all water customers
receiving Lake Michigan water onto the same rate schedule and pay the higher
costs associated with the system conversion and purchase of water from the Water
Commission.

Large rate increases have been put in place, although the percentages varied
across the water systems and additional rate increases are approved through
2015. Sewer rates have additionally been increased to reflect cost increases.
The combined bill is very affordable at 1% of median household income. Future
increases are anticipated to be modest. Both water and sewer rates include a
capital expenditure component that provides dedicated revenues to fund ongoing
capital of the systems. The rate structure includes a line item that collects
the amount owed to purchase Lake Michigan water, so any rate increases for the
water supply are passed through to customers on a real-time basis.

CAPITAL NEEDS ARE LIMITED; LOW DEBT BURDEN

Although the county's wastewater treatment facilities are older, limited growth
is occurring and capital needs are limited to projects that will be funded from
ongoing revenues. The water facilities are limited given the smaller size of the
customer base. The system age of plant is 26 years, as compared to Fitch medians
of 13 years, reflecting the age of the facilities. The County's five-year
capital plan totals $11 million, which will be funded from 2008 bond proceeds
still on hand and revenues. The County prudently funds all infrastructure
replacement through ongoing maintenance expenditures. Only larger capital
projects are funded outside operations.

Debt outstanding is limited to around $15 million. The County has $8.7 million
outstanding in senior lien series 2008A and 2012A bonds and $6.5 million
outstanding in subordinate lien series 2008B bonds. The county also has a $3.3
million loan from the IEPA that is paid junior to the subordinate lien bonds.
The debt obligation is included in Fitch's all-in debt service coverage
calculation. All debt amortizes in the next 15 years and debt per customer is
low at $483 as compared to Fitch's median of $1,611.

STRONG FINANCIAL PERFORMANCE DESPITE DECLINING DEMAND

The system's financial performance declined in fiscal 2009 with lower usage
levels but has recovered with rate increases even though lower demand levels
persist. Debt service coverage of the senior bonds was 4.6 times (x) in FY11 and
coverage of all obligations, including the EPA junior lien, was more modest at
1.5x. These coverage levels are projected to remain strong with additional rate
increases in the next five years at over 4.5x on the senior lien and 2.0x
all-in, respectively. Liquidity is healthy at $7.6 million at the end of FY11,
or 165 days operating cash.


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
information from Creditscope.

Applicable Criteria and Related Research:
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 3 2012);
--'Revenue-Supported Rating Criteria' (June 12 2012);
--'2013 Water and Sewer Medians' (Dec. 5 2012);
--'2013 Outlook: Water and Sewer Sector' (Dec. 5 2012).

Applicable Criteria and Related Research:
U.S. Water and Sewer Revenue Bond Rating Criteria
Revenue-Supported Rating Criteria
2013 Water and Sewer Medians
2013 Outlook: Water and Sewer Sector
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