Fitch Affirms Wellington Village, FL's Water & Sewer System Rev Rfdg Bonds at 'AA+'; Outlook Stable
Fitch Ratings affirms the following Wellington Village, FL (the village) revenue refunding bonds:
--Approximately $2 million utility system revenue refunding and improvement bonds, series 2003, at 'AA+'.
The bonds were issued by the ACME Improvement District (the district) which is a dependent district of the village.
The Rating Outlook is Stable.
The bonds are payable solely from and secured by a first lien on the net revenues of the system, including connection fees.
KEY RATING DRIVERS
SOLID FINANCIAL PROFILE: Favorable financial margins continue to improve, with debt service coverage in fiscal 2012 at 3.9x.
EXCELLENT LIQUIDITY: Cash on hand for fiscal 2012 was over 500 days, and the system had 128% of free cash available to fund depreciation.
LIMITED ECONOMY, WEALTHY BASE: The local economy is somewhat narrow; however, proximity to West Palm Beach provides additional economic opportunity.
VERY LOW DEBT: The balance of outstanding debt matures at the start of fiscal 2014 and the cash-funded debt service reserve is sufficient to redeem all debt. However, Fitch's rating takes into account the possibility, although remote, that the district will issue additional debt while the current debt remains outstanding.
HIGH RATE SETTING FLEXIBILITY: The utility's low customer charges allow for ample rate increasing flexibility.
RATING STABILITY EXPECTED: Fitch expects that the district's effective financial management and stable operating performance will continue, and that major shifts to credit quality are unlikely.
The Wellington Village water and sewer district spans over 39 square miles and serves 19,885 water and 18,106 sewer customers in Wellington Village, Royal Palm Beach, and unincorporated areas in Palm Beach County in southeast Florida.
STRONG FINANCIAL PROFILE
Historical financial ratios are excellent. Senior lien debt service coverage (DSC) was very high at 3.9x in fiscal 2012, and has averaged 3.3x over the past five years. DSC excluding connection fees was also very favorable at 3.6x. There is no subordinate debt. Debt as a percent of gross revenues at 15% is on par with the 'AA' median average of 16%.
Current outstanding debt, which matures on Oct. 1, is fully covered by a cash-funded debt service reserve fund. Free cash flow to depreciation at 128% in fiscal 2012 and 102% in fiscal 2011 demonstrates an ability to recover capital costs at the rate of depreciation from existing rates, and is high compared to the 'AA' median of 76%.
VERY HIGH LIQUIDITY
Over the past five years, the district's liquidity has been on a decline as it funds the capital program with internal sources. However, levels are still exceptionally high. As of fiscal 2012, the district earmarked a portion of formerly unrestricted assets for capital spending approved by city council. As a result, liquidity for fiscal 2012, at a strong 510 days cash on hand, declined from the 1,116 days a year prior.
STABLE ECONOMY, WEALTHY CUSTOMER BASE
Local economic indicators have improved since the recession, with unemployment falling considerably to 5.2% in March 2013 compared to 7.1% in March 2012. Median household income continues to exceed that of the county, state, and nation, at over $78,000 per capita. Home values are steadily increasing, according to Zillow.com, with a 14% improvement in prices as of May 2013 over the most recent trough in August 2011.
Wellington Village is known globally for its equestrian sporting industry. Economic activity is relatively concentrated in business associated with this spectator sport, as well as leisure activity and tourism. Thus, residents primarily seek employment opportunity in West Palm Beach and the greater Palm Beach County area.
MANAGEABLE CAPITAL IMPROVEMENT PLAN, LOW DEBT
The district's five year capital improvement plan (CIP) is a modest $18.6 million, or about $490 per capita, as major capital upgrades and expansions to the water and wastewater plants were completed over the past five years. The bulk of the current CIP funds renewal & replacement projects, and is funded entirely by internal cash resources, including water and sewer receipts (76%), as well as capacity connection fees (24%).
Barring additional, unexpected debt issuances, the district will be debt-free on Oct. 1, 2013.
The combined water and sewer bill for the average residential customer of $63 represents roughly 1% of median household income (MHI), well below the Fitch 2% MHI affordability threshold. The rate structure includes both fixed and volumetric charges, with fixed charges accounting for roughly 55% of the bill, mitigating potential revenue fluctuation from weather patterns and heavier conservation. The village's rates range from low to moderate compared to surrounding communities.
Additional information is available at 'www.fitchratings.com'.
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', 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
Eva D. Rippeteau, +1-212-908-9105
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Teri Wenck, CPA, +1-512-215-3742
Amy Laskey, +1-212-908-0568
Elizabeth Fogerty, New York, +1-212-908-0526