TEXT-Fitch affirms Indian River County, Fla. water, sewer revs at 'AAA'
Feb 28 - Fitch Ratings affirms the following Indian River County, FL revenue bonds: --Approximately $25 million water & sewer revenue refunding bonds, series 2009, at 'AAA'. The Rating Outlook is Stable. KEY RATING DRIVERS STRONG COVERAGE; LOW DEBT: Indian River County's water & sewer utility (system) has demonstrated near 2.0 times (x) coverage for the past four years, and projects to continue this trend in the five year forecast. Debt levels are low and will decline further following the county's payment of existing and callable senior lien debt with cash in 2015. EXCELLENT FINANCIAL PROFILE: In fiscal 2012 (unaudited), the system boasted ample liquidity with 887 days cash on hand, over $38 million in unrestricted cash, and debt service payments representing only 19% of gross revenues. Fitch expects system liquidity will remain strong. DECLINING CAPITAL PROGRAM, HEALTHY INFRASTRUCTURE: The system's capital program is small yet effective, with no major projects in the pipeline. To maintain the system in good repair, the system restricts on average $3.5 million annually from the operating fund for Renewal & Replacement (R&R) costs. The system's policy is to dedicate 10% of revenues to R&R funds annually. CONSERVATIVE & ATTENTIVE MANAGEMENT: The management team has many years of service and familiarity with the system and in the field, and is conservative in their financial projections and budgeting practices. AFFORDABLE & FLEXIBLE RATE STRUCTURE: The system has not increased rates since 1999 due to low population growth and wide operating margins. Though it has no plans to do so in the foreseeable future, the system is authorized to impose consumer price index adjustments if necessary. RATING SENSITIVITIES The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely. CREDIT PROFILE LOCAL ECONOMY IMPROVING Indian River County (implied ULTGO rating of 'AAA' by Fitch) is located on Florida's central Atlantic coast, about 86 miles southeast of the city of Orlando. The county covers nearly 500 square miles and has a population of 138,028. The economy is supported by construction, manufacturing, health care, tourism, educational services, retail, and distribution. The county is showing some signs of recovery since the economic downturn, with higher consumer spending and an increase in tourism revenues. The county's unemployment rate has declined to 9.6% as of November 2012, which while still elevated is lower than the 11.8% rate from a year prior. Fitch notes that although this rate is higher than that of the State (8.7%) and nation (8.1%), 29 consecutive months of employment growth bodes well for the local economy. Home foreclosure rates continue to increase. However, due to the county's strict bill collection enforcement, delinquency rates are very low, and Fitch does not expect a significant impact to revenues. ABUNDANT WATER SUPPLY & SOUND INFRASTRUCTURE The county's water and sewer system provides services to a mostly residential customer base of approximately 44,500 water, and 26,000 sewer accounts as of 2012. There is no customer concentration, and despite recent economic and housing market weakness, the county's mostly residential customer base has been relatively stable. Water is supplied through various groundwater wells from the Floridan Aquifer, with treatment provided by one of two county-owned treatment facilities. The treatment plants have a combined 22.5 million gallons per day (mgd) of treatment capacity, which is more than sufficient to meet the system's average daily demand in 2012 of 8.6 mgd. Water use is regulated by the St. Johns Water Management District through a consumptive use permit that expires in 2031. Management believes current supply sources will be capable of meeting the county's long-term demand through at least 2030. Wastewater is treated at one of four regional treatment plants, with a combined current treatment capacity of 12.9 mgd. Average daily flow for the system is just 4.5 mgd, leaving plenty of treatment capacity to meet future growth. Effluent is treated to 100% re-use standards, and as a result the county does not expect to face significant capital or other regulatory compliance costs related to numeric nutrient mandates for effluent discharged into local surface water. STRONG CURRENT & FUTURE FINANCIAL PROFILE The system's financial performance has been historically solid, with 2.0x debt service coverage (DSC) consistently since 2009. The county's conservative management maintains this level of coverage despite continuously growing liquidity in an effort to guarantee available cash for unforeseen system needs. Unaudited results for fiscal 2012 show DSC of 2.1x, and Fitch and management predict DSC will stay around this level into the future. Operating expenses are forecasted to stay flat in the five year outlook, while revenues and unrestricted cash balances continue to grow. As such, liquidity is extremely strong, with the system ending fiscal 2012 with more than $38 million in unrestricted cash, equivalent to 887 days of operating expenses on hand. DEBT OUTLOOK POSITIVE The system's low debt profile is a credit strength. Debt per customer is just $650 in 2012, well below average compared to other similarly rated systems. Debt to net plant is also low at just 21%, and debt amortization is well above average with 100% of outstanding bonds retired within 15 years. With a modest $11.8 million capital program spread across the next four years, the county's debt profile is expected to improve even more than current levels. Furthermore, management has indicated that it will spend $15 million in cash to redeem a portion of its outstanding callable debt in 2015, reducing its overall burden going forward by 32%. LOW RATES GOOD FOR ECONOMIC RECOVERY The average residential customer bill of $60 for combined service assuming 7,000 gallons of use is affordable at 1.6% of median household income. Rates should stay competitive as the county has a very manageable capital program that is expected to be funded with cash and connection fees. Rates have not been raised since 1999, and though management has no plans to raise them in the financial forecast, it is entitled to do so per a rate resolution should the necessity arise. 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' (June 12, 2012); --'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 3, 2012); --'2013 Water and Sewer Medians'(Dec. 5, 2012); --'2013 Outlook: Water and Sewer Sector' (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