AUSTIN, Texas--()--Fitch Ratings assigns the following rating to Fulton County, Georgia's (the county) bonds:
--Approximately $219.8 million water and sewerage revenue refunding bonds, series 2013, 'AA-'.
The bonds are scheduled to sell the week of March 5 via negotiation. Bond proceeds will be used to refund certain outstanding bonds of the county for interest savings without extension of maturity.
In addition, Fitch affirms the following ratings of the county:
--$247 million (pre-refunding) outstanding water and wastewater revenue bonds, series 2004 at 'AA-';
--$246 million outstanding water and sewerage revenue refunding bonds, series 2011 at 'AA-'.
The Rating Outlook is Stable.
The current offering and outstanding parity bonds are secured by a first lien on net revenues of the combined water and sewer system (the system). The series 2013 bonds will also be secured by a cash-funded debt service reserve fund.
KEY RATING DRIVERS
HIGH LIQUIDITY; LOW COVERAGE: The county's very strong cash balances provide a great deal of flexibility and an important offset to below average debt service coverage (DSC). Fitch expects coverage to remain at lower levels given the lack of planned rate increases.
ELEVATED DEBT TO DECLINE: Key debt ratios are elevated but are expected to decline through 2017 as the county's capital improvement program (CIP) largely focuses on system renewal. The county plans to fund its needs on a pay-as-you-go basis which should help to improve debt ratios over time.
SOUND ECONOMIC FUNDAMENTALS: The county's combined water and sewer system provides an essential service to a broad and diverse service area.
STRONG CASH BALANCES KEY: Declining liquidity could lead to a lowering of the rating in light of expectations of below-average DSC through the forecast period.
The water and sewer systems serve approximately 70,600 and 88,200 customer accounts, respectively, located primarily in the northern and southern parts of the county. Residents living within the city limits of Atlanta (the city) are served by the city's water and sewer system. The combined system's customer base is diverse, made up primarily of residential users. The largest users accounted for just 2.7% of total revenues in 2011. Growth in the system's service area was moderate for much of the prior decade given that the county is mostly built-out.
SUFFICIENT WATER AND SEWER CAPACITY
Treated water is purchased from the Atlanta Fulton County Water Treatment Plant (Atlanta/Fulton plant), which the county shares ownership of with the city. The county also sells water on a wholesale basis to the city of Roswell and to Forsyth County. Raw water is drawn from the Chattahoochee River just south of Lake Lanier and is treated by the Atlanta/Fulton plant, which has treatment capacity of 90 million gallons daily.
Fulton County's demand increased in 2010 to about 60% of its available treatment capacity following severe drought conditions and water use restrictions in 2008 and 2009. Nevertheless, county officials expect remaining capacity will be sufficient to meet customer demands for the foreseeable future given the lack of immediate growth pressures.
Wastewater collection and treatment is provided directly through the county's system and indirectly through treatment and disposal contracts with neighboring governments. The county's six wastewater treatment plants are reportedly in good operating condition and are well maintained, although the county is moving forward with enhancements to certain facilities to alleviate capacity constraints as the treatment plants are not interconnected. All required permits are reportedly in place and no regulatory issues exist.
LOWER DEBT SERVICE COVERAGE OFFSET BY CASH BALANCES
The system's overall financial performance remains adequate for the given rating level, although debt service coverage (DSC) is considered relatively narrow compared to peer utilities. For 2011, DSC was 1.3x and improved to 1.5x for unaudited 2012 - the county's fiscal year coincides with the calendar year. Through the fiscal 2017 forecast period, DSC is expected to be in the 1.3x-1.8x range given no additional debt or rate increase plans and relatively flat consumption and operating expense levels.
The county's below-average DSC is mitigated by historically high cash balances, which have exceeded 700 days cash since 2007. For unaudited 2012, days cash improved from the prior year, rising to 786 days. The maintenance of high levels of liquidity through the forecast period will be key in light of relatively low DSC expectations.
DEBT PROFILE TO IMPROVE FROM PAY-GO CIP
The 2013-2017 CIP totals $195 million and is expected to be paid entirely from surplus revenues and cash reserves. The CIP focuses largely on repair and renewal needs, which provides a good deal of flexibility for the county in determining capital outlays. While the county has adhered to pay-go funding in recent years (the last new money issuance was in 2004), debt levels are moderate to high. Per capita and per customer debt levels are both over 1.8x the 'AA' categorical median, but should moderate somewhat over the next five years with no new planned issuances. Somewhat offsetting debt concerns, principal amortization and debt to net plant assets are in line with 'AA' category medians.
SOUND ECONOMIC FUNDAMENTALS
Fulton County has a diverse economic base benefiting from Atlanta's role as the state capital and center of a broad regional economy. The county serves as a corporate headquarters for large employers including Coca-Cola, Bell South, Home Depot, and Delta Air Lines. Hartsfield-Jackson International Airport (Hartsfield), the world's busiest airport, is also located within the county.
Despite the presence of Atlanta and its numerous large employers, the county's December 2012 unemployment rate of 9.3% is higher than the state and national averages of 8.8% and 7.6%, respectively. Nevertheless, Fitch believes the presence of various state, federal, health and educational institutions bolsters the county's longer-term economic prospects. Wealth levels in the county are favorable at 10%-15% above the state and nation.
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 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', August 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