Fitch Affirms Jupiter, FL Water System Revenue Bonds at 'AAA'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the rating on the following Jupiter, FL revenue bonds:

--Approximately $28 million water system revenue bonds, series 2002, and series 2003, at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of and first lien on the net revenues and pledged connection fees derived from the operation of the town's water system. The debt service reserve fund is met with a surety policy.

SENSITIVITY/RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The town's water system (the system) exhibits strong financial margins; all-in debt service coverage stands at more than 2.5x in fiscal 2011, and has averaged 2.6x over the past three years.

DECLINING DEBT BURDEN: Debt per capita is slightly elevated compared to the 'AAA' median. Debt levels should decline, given the system's modest capital needs, no near-term borrowing plans and rapid amortization.

ABUNDANT CASH ON HAND: Management has consistently maintained high cash balances with more than 924 days cash on hand (DCOH) in fiscal 2011 from all available sources.

EFFECTIVE CAPITAL PROGRAM: The five-year capital improvement program maintains the system's prudent practice of substantial investment in renewal & replacement (R&R) funds to upgrade and modernize its water system.

STRONG CUSTOMER BASE: Jupiter is a very affluent community even within wealthy Palm Beach County, with median household income well above state and national averages.

GUARANTEED WATER RESOURCES: Jupiter's water supply is secured through 2030 by a 20-year permit granted by the South Florida Water Management District.

CREDIT PROFILE:

The town's water system serves 80,000 people within the corporate limits of the town of Jupiter (general obligation (GO) bonds rated 'AAA' by Fitch) as well as areas within Juno Beach and unincorporated areas of Palm Beach (Unlimited Tax General Obligation (ULTGOs rated 'AAA' by Fitch) and Martin (implied ULTGO rating of 'AA') counties.

AMPLE WATER SUPPLY

The town is permitted to draw water from both the Floridan and Surficial Aquifers by the South Florida Water Management District through a permit that was renewed for 20 years in August of 2010. System infrastructure includes a reverse-osmosis plant to treat brackish water drawn from the Floridan Aquifer, as well as a nanofiltration plant and ion exchange plant, both employed to treat raw water from the Surficial Aquifer. The nanofiltration plant, completed and brought online in 2010, ensures future compliance with all current and foreseeable drinking water quality regulations.

STRONG SUSTAINED FINANCIAL MANAGEMENT

Historical financial operations have generated solid debt service coverage levels. Audited results for fiscal 2011 show all-in coverage of 2.5 times (x) from all pledged sources and 2.2x excluding connection fees. Liquidity is also very strong. As of fiscal 2011 the water utility has nearly $27.5 million in unrestricted cash and investments, which is equivalent to 924 DCOH.

Financial performance is expected to stay solid into the future, with coverage levels ranging from 2.0x to 3.0x through 2017. Fitch believes that liquidity will remain strong given the system's robust annual cash flows and manageable capital needs. Rates are very competitive when compared to regional utilities, and there is no concentration, as the top 10 customers represent less than 3.3% of gross revenues.

DECLINING DEBT BURDEN

Debt levels are slightly elevated compared to the 'AAA' medians on a per-capita ($466) and per customer ($1,348) basis but affordable given the high income levels. Favorably, amortization is above-average. The town does not report any additional debt issuance plans through 2017 and existing capacity is deemed adequate to satisfy the demands of the population by the town's projected build-out in seven to 10 years.

The five-year capital plan outlines $24.5 million in expenditures, to be funded by connection fees, renewal and replacement (R&R) funds, cash reserves and grants. The town prudently budgets to the rate covenant plus an amount to fund R&R deposits based on the approximate depreciation of system assets, ensuring adequate debt service coverage and efficient renewal of system assets.

STABLE SERVICE AREA

The service area has a current year-round population of over 80,000 that increases by more than 9,000 residents during the winter months. Jupiter is a very affluent community, even by Palm Beach County standards, with median household income levels equal to 139% of the state and 124% of the nation. The local economy, traditionally dependent on tourism and leisure spending and construction, has held up well in light of the housing market correction and recession.

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 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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015

U.S. Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684901

2013 Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695756

2013 Outlook: Water and Sewer Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695755

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Contacts

Fitch Ratings
Primary Analyst
Eva Rippeteau, +1-212-908-9105
Associate Director
Fitch Ratings, Inc.
1 State Street Plaza
New York, NY 10004
or
Secondary Analyst
Teri Wenck, +1-512-215-3742
Associate Director
or
Committee Chairperson
Jessalynn K. Moro, +1-212-908-0608
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Eva Rippeteau, +1-212-908-9105
Associate Director
Fitch Ratings, Inc.
1 State Street Plaza
New York, NY 10004
or
Secondary Analyst
Teri Wenck, +1-512-215-3742
Associate Director
or
Committee Chairperson
Jessalynn K. Moro, +1-212-908-0608
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com