Jan 15 - Fitch Ratings assigns an 'AA+' rating to the following Tampa Bay
Water, A Regional Water Authority, FL (TBW, or the authority) revenue bonds:
--Approximately $76 million utility system revenue bonds, series 2013.
Bond proceeds will be used primarily to fund the C.W. Bill Young Reservoir (the
reservoir) reconstruction project, capitalized interest through October 2014,
make a reserve fund deposit, and pay issuance costs.
The bonds are scheduled for negotiated sale the week of Jan. 28.
In addition, Fitch affirms the following:
--Approximately $900 million outstanding utility system revenue bonds at 'AA+'.
The Rating Outlook is Stable.
The bonds are secured by a pledge of TBW's net revenues, which include the
moneys received from rates, fees, rentals, and other income collected for use of
the water system. A debt service reserve, fully-funded with cash, provides
KEY RATING DRIVERS
ESSENTIAL SERVICE PROVIDER: TBW is the region's exclusive wholesale water
provider serving 2.3 million residents through several very highly rated member
utilities. TBW's operating profile is strong, and its role in regional service
delivery and resource development, strong infrastructure and financial
management, and autonomy over rates are important rating factors.
JOINT MEMBER PAYMENTS: The member payments, which include provision for
operating costs, capital needs, and debt service, are joint, not several in
nature. However, the payments are an absolute and unconditional obligation of
each member, and are paid as an operations and maintenance (O&M) expense of each
member's utility system, ahead of their respective debt service.
TYPICAL LOW COVERAGE, STRONG LIQUIDITY: Financial margins and debt service
coverage are adequate but typical for a wholesale system. Cash balances have
historically been very strong, and are expected to improve further in fiscal
2012 (results are not yet audited). Strong liquidity and autonomous rate setting
provide management with significant financial flexibility in light of the narrow
debt service coverage margins.
MANAGEABLE DEBT AND CAPITAL NEEDS: The debt profile is manageable despite recent
completion of a large long-term capital improvement program that included
construction of the reservoir. Despite additional costs related to the
reservoir, Fitch does not expect the debt burden to rise appreciably over the
LARGE REGIONAL WHOLESALE PROVIDER
TBW is a large wholesale water provider serving the three-county area of the
Tampa-St Petersburg metropolitan statistical area (MSA). TBW enjoys exclusive
rights to provide treated water to its members, most of which carry high credit
ratings by Fitch, and has played a key role in developing and delivering high
quality water from various sources. TBW has successfully expanded and
diversified its water supply and production capabilities, providing solid
intermediate-term water capacity while meeting the regional challenges and
mandates to reduce groundwater use.
Governance is provided by a nine-member board of directors appointed by the six
member governments, somewhat insulating policy decisions from potential
political intrusion. A tenured and capable management team is responsible for
daily operations. Long-range capital and resource planning is updated
frequently, and rates are considered annually during the budget process. The
board has autonomy over rate setting, and rates have been increased annually to
maintain stable financial performance.
A FUNDAMENTALLY STRONG OPERATING PROFILE INFORMS THE HIGH RATING
TBW's six member agencies include Pinellas, Pasco, and Hillsborough counties,
and the cities of Tampa, St. Petersburg, and New Port Richey. Hillsborough's
water and sewer system revenue bonds are rated 'AAA' with a Stable Outlook by
Fitch. Tampa's utility system is rated 'AA+', and St. Petersburg and Pasco
County's systems are rated 'AA', all with Stable Outlooks. Pinellas County,
which has no water utility debt outstanding, and New Port Richey are not rated
Under the master water supply contract, the members unconditionally agree to pay
for the costs of service at the rates specified by the authority. TBW applies a
uniform rate in determining the member payments, which for fiscal 2012 was $2.56
per 1,000 gallons. Member payments are designed to cover both the fixed and
variable costs of the authority and include provision for operating,
administrative and maintenance costs, annual debt service, and amounts for
renewal and replacement and capital improvement of facilities and operating
reserves. Rates are determined by TBW based on annual estimates of all of the
costs associated with delivery of service to the member governments.
Member payments are several, not joint. However, members irrevocably agree to
make monthly payments, and such payments shall be made without set-off,
counterclaim, or abatement. In addition, member payments are made as an O&M
expense of the member's utility, which Fitch believes to be a strong security
feature. TBW also maintains strong operating fundamentals, including long-term
capital and resource planning, significant and ongoing infrastructure
investment, high cash reserves, and autonomy over rates.
SOLID SYSTEM INFRASTRUCTURE AND RESOURCE CAPACITY
Water resources are diverse and are comprised of groundwater, treated surface
water from the Hillsborough and Alafia rivers and the Tampa Bypass Canal, and
desalinated seawater. TBW has been successful in cultivating its supply
portfolio, while lowering its reliance on groundwater pumping. The system has a
total permitted water supply capacity of 240 million gallons per day (mgd),
which is well in excess of current demand of 164 mgd.
TBW is one of the few systems in the country that can process seawater. The
desalination plant was completed in 2008 and can provide almost 29 mgd of supply
to the system (with expansion capabilities to 35 mgd). Treated seawater is
combined with treated surface and groundwater before it is distributed. Two
interconnections with the city of Tampa provide some redundancy. A total of nine
treatment facilities including the surface water treatment plant, which has a
120 mgd capacity, and the desalination plant, provide ample capacity to meet the
system's long-term needs.
The 15 billion gallon above-ground surface water reservoir was completed in
2005. The embankment is structurally sound. However, the internal erosion plates
have cracked, requiring reconstruction. In 2009, the board approved moving
forward with permitting, design, procurement, and construction of the reservoir
project that will cost roughly $140 million. In August 2012, the board selected
Kiewit Infrastructure Group as the design/build firm. The project is expected to
begin next month and take about two years to complete.
During construction, TBW will utilize its other surface water sources and
desalination capabilities, but has also been granted on a temporary basis the
ability to exceed its withdrawal allocation from the groundwater wells by the
water management district. Fitch does not expect water supply interruptions
while the reservoir is being repaired, but acknowledges operating performance
may come under pressure especially if drought conditions materialize.
STRONG FINANCIAL MANAGEMENT AND LIQUIDITY OFFSETS MODEST COVERAGE
Like many wholesale systems, TBW displays only modest annual debt service
coverage - roughly 1.1x from net revenues historically, and about 1.3x including
available reserves. However, the strength of the member payments, a historically
strong financial position, and the ability to raise rates provides strong
support for the high rating. The rates are established during the annual budget
process and members are billed monthly for service.
Liquidity remains strong. The authority ended fiscal 2011 with $69 million in
unrestricted cash and investments, which included renewal and replacement
reserves equivalent to 471 days cash on hand. Management anticipates an increase
in liquidity for fiscal 2012. However, most of the increase has been set aside
to fund legal costs associated with a recent lawsuit against the reservoir's
original design firm.
Pro forma financials provided by management show debt service coverage similar
to past results. The forecast assumptions appear reasonable but include the
refinancing of the 2011A and 2011B bonds prior to large scheduled bullet
maturities beginning in fiscal 2016. Modest annual rate increases and attainable
increases in demand from each of the members are also factored into the
forecast. Fitch does not anticipate TBW will have trouble gaining market access
for the refinancing of the 2011A and 2011B bonds.
SOLID ECONOMIC UNDERPINNINGS of the SERVICE AREA
Located midway down the western coast of Florida, the Tampa Bay region serves as
the economic center for Florida's Gulf Coast, with major sectors in business
services, government, healthcare, education, and tourism. The economy continues
to recover from the magnified effect of the recent downturn in the economy, with
solid employment level increases over the past 12 months. Preliminary BLS
employment data for November 2012 indicates a 3.3% increase in MSA jobs over the
same month in 2011. The Tampa MSA unemployment rate remains somewhat elevated at
8.1% in November 2012, but is well below the 10.3% rate recorded in November
MANAGEABLE CAPITAL NEEDS AND DEBT BURDEN
TBW's debt burden remains manageable despite having about $1 billion of total
debt outstanding. For fiscal 2012, debt is about 87% of net capital assets,
which is somewhat high, but is just $447 on a per capita basis. Also, long-term
capital needs appear to be limited, as water supply and treatment capacity are
both ample. This should allow debt ratios to decline over time. The current
five-year capital plan totals about $200 million and principally includes the
reconstruction of the reservoir.
The 2013 bonds are back-loaded with principal payments beginning in fiscal 2033.
However, the bonds mature in fiscal 2039 and the existing debt structure allows
for the 2013 bonds to wrap around existing debt service with a decline in debt
service over time. Annual debt service is expected to be level through 2016. A
spike in debt service beginning in 2017 from scheduled bullet maturities related
to the 2011A and 2011B bonds are anticipated to be handled with a refinancing of
those bonds to smooth-out the debt service over time. Fitch expects the
authority will maintain the ability to access markets and will take appropriate
steps to manage this risk.