AUSTIN, Texas--(BUSINESS WIRE)--During the course of routine surveillance, Fitch Ratings affirms the following Mineral Wells, Texas (the city) rating:
--$4.3 million water and sewer system revenue bonds at 'AA-'
The Rating Outlook is Stable.
RATING RATIONALE:
--Financial performance has weakened, but the
city has taken steps to bolster performance through a series of rate
increases.
--There is no future borrowing planned for the city's
utility system; however, the city supports the debt of the Palo Pinto
County Municipal Water District #1 (the district) which is about to
embark on a large reservoir project to secure water supply beyond 2050.
--City
has a strong and successful relationship with the district.
--Current
water resources are sufficient to meet long-term demand.
--Combined
utility rates are high relative to surrounding areas.
KEY RATING DRIVERS:
--Maintenance of adequate debt service coverage
and liquidity levels will continue to be an important rating
consideration.
--Additional leveraging by the district could
pressure city system rates which are already relatively high.
SECURITY:
The bonds are secured by a first lien pledge on the
system's net water and sewer revenues.
CREDIT SUMMARY:
The city of Mineral Wells is located in Parker and
Palo Pinto Counties approximately 48 miles west of Fort Worth.
Population growth over the last decade has been flat and was estimated
at about 16,900 in 2010. The city is the largest in Palo Pinto County
and serves as the county's principal commercial center. Palo Pinto
County unemployment rates for December 2010 at 8.3% were above the
state, but below the national unemployment rate. County wealth levels as
measured by median household income are below the state and national
levels.
The water utility provides retail service to more than 6,300 city customer accounts and wholesale service to six rural water supply corporations. Treated water is derived from the district (senior lien revenue bonds rated 'AA-' with a Stable Outlook by Fitch), a component unit of the city. The district's Lake Palo Pinto, along with all other district facilities, is operated by the city. District water supplies are sufficient to meet city needs through 2050. The sewer utility provides collection, treatment, and disposal services to approximately 5,600 customers within the city limits and certain areas outside the city. The combined service area is stable, experiencing only modest growth over the last several years. The city's utility rates are high in relation to median household income, but comparable to regional averages.
Utility operations and debt service coverage on system revenue bonds has seen some decline in the most recent fiscal years. For fiscal 2009, actual debt service coverage on system revenue bonds was 1.4 times (x). This is lower than coverage over the last five years which has ranged from 1.4x to 2.1x. Liquidity declined as well, with the city having 92 days of operating expenditures for 2009, just above the city's informal policy of 90 days. In response, the city implemented a 5% rate increase in 2010 and plans to implement similar rates increases in the next two years. Fitch believes the rate hikes should help keep coverage levels within the 'AA-' rating category.
Although the city does not plan to issue long-term debt for its utility, the district plans to issue debt in the next eight years for construction of a water reservoir to ensure water supplies remain plentiful for the region beyond the year 2050. The debt of the district is treated as an operating expense of the city's utility. Additional city rate hikes may be needed in coming years to support the planned district debt. Fitch believes this could continue to pressure system user rates, which are already relatively high.
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 and the Municipal Advisory Council of Texas.
Applicable Criteria and Related Research:
--'Revenue-Supported
Rating Criteria', dated Oct. 8, 2010;
--'Water and Sewer Revenue
Bond Rating Guidelines', dated Aug. 6, 2008.
--'2011 Water and
Wastewater Medians', dated Jan. 18, 2011.
--'2011 Outlook: Water
and Wastewater Sector', dated Jan. 18, 2011.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
2011 Outlook: Water and
Wastewater Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=593286
2011
Water and Wastewater Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=593285
Water
and Sewer Revenue Bond Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=395918
Revenue-Supported
Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.