CHICAGO--(BUSINESS WIRE)--Fitch Ratings affirms its 'AA-'rating on the following Atlantic County Utilities Authority (ACUA) bonds:
--$7 million sewer revenue refunding bonds, series 2009.
The Rating Outlook is Stable.
SECURITY
Outstanding parity bonds are secured by a pledge of gross revenues of the authority's sewer system.
KEY RATING DRIVERS
SOUND MEMBER CREDIT PROFILES: ACUA's largest four member utilities account for the majority of the authority's annual charges and each have profiles that are consistent with the 'A' rating category.
SIGNIFICANT CASH IMPROVES CREDIT QUALITY: ACUA's stable and ample liquidity of over 500 days cash on hand enhances the credit quality of the outstanding bonds. The liquidity provides solid bondholder protection against unlikely timing delays in receiving member payments, due to delinquencies.
FAVORABLE DEBT AND MANAGEABLE NEEDS: ACUA's relatively modest capital requirements have helped to maintain low debt levels and rapid principal payout.
SOLID LEGAL PROVISIONS: Legal provisions through ACUA's service agreement provides for a joint and several obligation amongst ACUA's members for operating expenses and debt service. To date, there have been no delinquencies by any participants.
RATING SENSITIVITIES
WEAKENED FINANCIAL PROFILES: Deterioration in the credit quality of any of the largest participants, especially ACSC would have an impact on the rating.
DECLINES IN AVAILABLE CASH: ACUA's ability to sustain high liquidity levels is important to maintain the current rating.
CREDIT PROFILE
Created in 1969 by the New Jersey State Legislature, the authority provides on a wholesale basis wastewater conveyance and treatment services to 14 participants pursuant to a service agreement. Participants include the municipalities of Absecon, Brigantine, Egg Harbor City, Galloway Township, Linwood, Longport, Margate, Northfield, Pleasantville, Somers Point City and Ventnor as well as the Atlantic City Sewerage Company (ACSC) and the Egg Harbor Township Municipal Utilities Authority (MUA) and Hamilton MUA (both MUAs have individual service contracts with their respective underlying municipality).
The authority's customers are the participants rather than the individual properties receiving sewerage services. As such, the participants, not the authority, service and bill the individual properties. The participants can bill the individual users through a separate fee or through the municipal tax rate without limitation, and debt service payments are excluded from the property tax levy cap limitation currently imposed by the state of New Jersey.
SOUND MEMBER CREDIT PROFILES
ACSC, Egg Harbor Township MUA, Hamilton MUA and Galloway Township accounted for approximately 61% of ACUA's annual charges in fiscal 2012; ACSC alone contributed 38%. Fitch does not publically rate any of these participants, but believes that their credit profile is consistent with the 'A' rating category. In its analysis Fitch applied certain stresses to these four participants in order to demonstrate their ability to meet revenue shortfalls that ACUA might encounter from non-payment by one or more customers Any credit deterioration among the largest participants, especially ACSC would likely result in a downgrade of ACUA's rating.
HEFTY CASH BALANCES AND SATISFACTORY FINANCIAL PERFORMANCE
The credit profiles of the largest members, which are consistent with the 'A' rating category, are the basis of the rating on ACUA's outstanding bonds. In Fitch's view, the significant cash levels enhance the credit quality of the outstanding bonds. ACUA has ample liquidity of over 500 days cash on hand. The system's available cash of $25 million can provide over 3x maximum annual debt service coverage. Over the last five years, the system's days cash on hand has exceeded 400 days. Management strongly expressed its plan to maintain healthy cash balances for the system.
Financial performance remains sound for the given rating category and in comparison to other wholesale systems rated by Fitch. ACUA's debt service coverage was satisfactory at 1.19x for fiscal 2012, reflecting management's policy to budget to meet the 1.1x rate covenant. Budgeted fiscal 2013 DSC is expected to equal 1.17x.
STRONG SERVICE AGREEMENT
Pursuant to the service agreement, participants are contractually obligated to pay annual charges sufficient to provide for the system's operation and maintenance expenses, principal and interest on any bonds or other obligations of the authority, including any deficits resulting from a participants' failure to pay its annual charge. In addition to the joint and several obligation, the service agreement permits the authority to impose charges directly on individual users in order to recover any balance due the authority. Delinquent charges are also collectable through a municipal lien and tax sale. To date, ACUA has never experienced a payment default by any participants.
LOW DEBT LOAD WITH MODEST CAPITAL NEEDS
The system's debt load is favorable with debt per customer at $493 and debt per capita at $149 (assuming 85% of total county population), which is well below that of higher rated systems. Bond and loan amortization is also rapid with 84% of the system's debt maturing in 10 years.
The fiscal 2014-2018 capital improvement program (CIP) appears very manageable at $25.9 million. The focus of the CIP is geared to rehabilitation and repair of system assets. The CIP is funded primarily with loan proceeds from the NJ Environmental Infrastructure Trust's (NJEIT) SRF program, which provides low-cost financings for eligible environmental infrastructure projects.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 2012;
--'U.S. Water and Sewer Revenue Bond Rating Criteria', July 2013;
--'2013 Water and Sewer Medians', December 2012;
--'2013 Outlook: Water and Sewer Sector', December 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499
U.S. Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=799224
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.