TEXT-Fitch affirms West Bountiful, Utah water revs at 'A+'

Fri Jan 25, 2013 4:11pm EST

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Jan 25 - Fitch Ratings takes the following rating action on West Bountiful,
Utah (the city) bonds:

--Approximately $4.4 million water system revenue bonds, series 2009 affirmed at
'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the city's culinary water system (the
system). Revenues include culinary water user fees, impact fees, and connection
fees.

SENSITIVITY/RATING DRIVERS

REBOUND OF LIQUIDITY: Liquidity and coverage levels have improved as a result of
steep rate hikes. With the city's planned use of cash to fund capital
improvements, Fitch expects liquidity to decline but remain adequate.

ELEVATED RATES: Rates are at Fitch's threshold affordability levels after two
years of significant rate hikes and well above neighboring communities which
could reduce future flexibility.

HIGH BUT DECLINING DEBT: The debt burden is above average but there are no plans
for future borrowing.

ADEQUATE SUPPLY: Water supply is adequate through build out and the city is
diversifying its supply by constructing a new well.

AVERAGE LEGAL PROVISIONS: Legal safeguards for bondholders are standard.

WHAT COULD TRIGGER A RATING ACTION

DETRIORATION OF LIQUIDITY POSITION: Management's inability to balance cash
funded capital needs while maintaining adequate liquidity would likely cause
downward pressure on the rating.

CREDIT PROFILE

AMPLE SUPPLY THROUGH BUILDOUT

The system serves just over 1,600 connections, with the majority of those being
residential accounts. The city has sufficient water rights to both imported and
local well water to meet its projected culinary water needs through build-out.

RATE HIKES BOOST FINANCES

The city council increased water rates by 36% in 2009, after many years without
rate increases, to support rising annual debt service (ADS) costs associated
with the 2009 bonds. With the need to replace 35-60 year old water lines and
maintain debt service coverage when the 2009 bonds started to mature, the city
enacted a second rate increase in 2010, raising rates by 110%.

FUTURE RATE FLEXIBILITY STRAINED

Fitch is concerned that with the recent rate increases, future rate flexibility
is sharply diminished given user charges are now well above neighboring
communities and above Fitch's affordability benchmark of 1% of median household
income for residential customers. However, capital plans are well defined and
supported by the recent rate hike alleviating the need for any additional
borrowing. Consequently, Fitch does not believe that the diminished rate
flexibility will adversely impact the system's financial or capital funding
capacity.

STRONG COVERAGE

In 2012 the city took action to discontinue loans to the golf fund which has
also supported a rebounded cash position. The city formalized repayment of over
$1 million in loans to the golf fund, of which $190,000 will be to the water
fund directly. The loans to the various funds will be repaid beginning in 2015
after golf fund revenue bonds are repaid. The system posted over $967,000 in
unrestricted assets for fiscal 2012, equal to 722 days cash on hand (DCOH). Debt
service coverage rebounded along with liquidity and registers at a strong 3.1x
for fiscal 2012, after falling to a low in fiscal 2010 of 1.3x.

ADEQUATE LIQUIDITY KEY TO CREDIT STABILITY

The 2012 - 2017 capital improvement program (CIP) totals approximately $5
million and will be entirely funded from user charges. The system's liquidity
position has been volatile over the past five years, reaching highs of over 1700
DCOH in fiscal 2007, to zero in fiscal 2010. Fitch believes the system's future
cash position will decline given plans to cash fund the CIP. Maintenance of the
current rating will depend on management's ability to balance funding of future
capital needs while maintaining adequate liquidity levels.

DECLINING DEBT BURDEN; STANDARD LEGALS

The system's elevated debt levels should improve given the lack of future
borrowing plans. Currently, outstanding debt per customer and on a per capita
basis is moderately high at $2,651 and $781, respectively. Favorably, debt
amortization is faster than median levels of similarly rated credits, with 40%
of principal retired in 10 year and 100% in 20 years.

Legal protections for bondholders are standard and include a 1.25x ADS coverage
rate covenant and additional bonds test. The debt service reserve fund is
supported by a surety policy.

SMALL, STABLE SERVICE AREA

The city is a residential community of 5,400 residents located eight miles north
of Salt Lake City. While primarily a bedroom community with few major employers
of its own, the city has good access to both the Salt Lake City and Davis County
employment markets. Wealth levels are above average at 123% and 134% higher than
the state and nation, respectively.

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 the U.S. Municipal
Revenue-Supported Rating Criteria, this action was additionally informed by
information from Creditscope.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 12, 2012;
--'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 3, 2012;
--'2013 Water and Sewer Medians', dated Dec. 5, 2012;
--'2013 Outlook: Water and Sewer Sector', dated Dec. 5, 2012.

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