Fitch Affirms Coral Springs, Florida's Revenue Bonds at 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Coral Springs, Florida's revenue bonds as part of its continuous surveillance effort:

--Approximately $5 million in outstanding series 2010 water and sewer revenue refunding bonds affirmed at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a senior lien pledge of the net revenues of the water and sewer system.

KEY RATING DRIVERS

STABLE AND WEALTHY SERVICE AREA: The service area economy remains sound and residents benefit from access to various employment centers in southeast Florida.

RISING, BUT STILL AFFORDABLE RATES: Rates have been increasing over the past several years; however, at just 1.2% of median household income rates remain affordable and provide financial flexibility.

BELOW AVERAGE SYSTEM LEVERAGE: Total system debt is modest with just $12 million outstanding (including approximately $7 million in state revolving fund loans) at fiscal end 2011. Limited and very rapid debt amortization is a credit positive. The outstanding senior lien bonds mature in fiscal 2013.

MANAGEABLE CAPITAL PROGRAM: Capital needs are very manageable and should allow debt ratios to stay low.

SOMEWHAT MIXED FINANCIAL PROFILE: Debt service coverage was again low for the rating in fiscal 2010 but preliminary totals suggest improvement in coverage in fiscal 2011. Improved liquidity, rapidly amortizing debt, and significant rate raising flexibility help offset the mixed results.

BELOW AVERAGE BUT SATISFACTORY LEGALS: The rate covenant and ABT require just 115% coverage of debt service from net revenues; however, other strong credit characteristics offset the below average legal provisions.

CREDIT PROFILE

SOLID AND DIVERSE SERVICE AREA ECONOMY

Coral Springs benefits from its location within one of Florida's most stable and diverse employment centers, the Broward - Palm Beach County - metropolitan area. The mostly residential area is characterized by solid economic growth over the past two decades and above average income. The county's unemployment rate is slightly above average but has steadily declined over the past 12 months to 8.9% in November 2011. The customer base remains stable with services provided to over 12,800 water and sewer accounts in 2011. The area is fully developed with limited additional customer growth expected.

LOW DEBT BURDEN A CREDIT STRENGTH

Debt as a percentage of net plant assets totaled 36% in 2010, which is slightly above the median for Fitch-rated 'AAA' water and sewer utilities; however, the debt per customer is well below average at just $491. Fitch notes as a credit positive the fact that the system's senior lien bonds will be paid off in fiscal 2013.

Capital needs are modest and include a small amount of additional debt, which is likely to be issued as subordinate state revolving fund loans; however, if additional senior lien bonds are issued, Fitch believes the debt burden will remain low thanks to the system's rapid amortization of previously issued bonds.

SOMEWHAT MIXED FINANCIAL PROFILE

The system ended fiscal 2010 with a small operating surplus and 1.4x senior lien debt service coverage, which remains low for the rating. However, a fairly sizable rate increase is expected to increase fiscal 2011 coverage (unaudited) to more than 2.0x on the senior bonds and 1.9x all-in. An anticipated increase in O&M costs and subordinate lien debt service in fiscal 2012 will reduce coverage to 1.6x on the senior lien bonds and a still acceptable 1.5x all-in.

Management projects a further decline in debt service coverage in fiscal 2013 due to another increase in subordinate lien SRF debt service, but in fiscal 2014 annual debt service drops by more than half as the system will only be amortizing the subordinate SRF loans. With 225 days of operating expenses on hand at FYE 2010, and with limited capital needs, Fitch believes the system's liquidity position is sound and a positive credit factor.

AFFORDABLE RATES PROVIDE FLEXIBILITY

After many years with no rate increases, management adjusted rates in fiscal 2008 and again in 2010. A decline in base charges was offset by an increase in volumetric charges in fiscal 2008, resulting in a roughly 7% water rate increase (assuming 8,000 gallons of use), and a 14% sewer rate increase. The fiscal 2010 changes increased rates by roughly similar amounts.

Additional smaller rate increases were adopted for fiscal 2011 and fiscal 2012, bringing the total monthly bill for the average residential customer to a still affordable $69, or 1.2% of median household income. Projected future rate increases appear manageable at 3% annually. Fitch believes the currently below average rate structure provides the system with flexibility to raise rates further if necessary.

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 Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 20, 2011);

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 10, 2011);

--'2012 Water and Sewer Medians' (Dec. 8, 2011);

--'2012 Water and Sewer Sector Outlook' (Dec. 8, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647331

2012 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657111

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