Fitch Affirms Utah Water Finance Agency, UT Bonds at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the 'AA-' rating on the following bonds issued by Utah Water Finance Agency, UT (the agency) issued on behalf of the city of St. George, UT (the city):

--$1.8 million outstanding revenue bonds (pooled loan financing program), series 2004A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the net revenues of the city's sewer system (the system). All water-related bonds previously outstanding were fully redeemed in 2014.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The wastewater fund's financial profile remains solid and is characterized by excellent liquidity and debt service coverage (DSC) levels consistent with Fitch's 'AA' category medians.

LOW DEBT, MANAGEABLE CAPITAL NEEDS: The system's debt is low and will fully retire by fiscal 2016. Capital needs are manageable and are ably paid for by recurring revenues.

CONSIDERABLE RATE AFFORDABILITY: The system charges a uniform monthly $11 per customer service fee that represents only 0.3% of median household income (MHI). The combined water and sewer rates equate to a still affordable 1.2% of MHI and both rates are expected to stay steady in the near term.

SOUND OPERATIONS: The sewer system serves a large regional service territory extending beyond the city limits. Service includes both collection and treatment services.

RATING SENSITIVITIES

CONTINUED STRENGTH EXPECTED: The rating is fundamentally constrained by the wastewater system's link to the comparatively weaker cash position of the St. George water system (rated 'A+' with a Stable Outlook by Fitch). However, Fitch views the wastewater system's consistent trend of positive financial, debt-related, and operating results as more than sufficient to sustain rating stability.

CREDIT PROFILE

St. George covers approximately 71 square miles in southwest Utah, located about 120 miles northeast of Las Vegas and 300 miles south of Salt Lake City. The city has a population of about 78,000. In addition to the city, the wastewater treatment system serves additional residents from the neighboring municipalities of Ivins, Santa Clara and Washington for a total estimated population of 111,000 residents. The city's low unemployment rate of 3.8% in Oct. 2014 (down from 6.2% two years prior) was slightly higher than the state's rate (3.6%) but lower than the national level (5.7%) in Oct. 2014. The city's MHI is 90% of the state and 82% of the nation.

SOLID FINANCIAL PROFILE

The sewer utility has historically posted strong cash flow, as evidenced by a fiscal 2014 year-end unrestricted cash level of $26.6 million or roughly 2,900 days cash on hand. Net system revenues yielded 1.9x DSC and debt carrying costs represented a moderate 21% of fiscal 2014 gross revenues.

The series 2004A bonds have a final maturity of July 1, 2016, although management has indicated that it issued a call notice to the trustee to redeem 100% of the remaining $1.8 million in sewer maturities on March 17, 2015. The bonds will be paid for out of existing system cash balances which Fitch views as attainable given the system's elevated liquidity.

LIMITED DEBT AND MANAGEABLE CAPITAL NEEDS

Debt levels are very low; total debt comprises 5% of the system's net plant and equated to approximately $54 per customer in fiscal 2014. These positive metrics are expected to improve further as the remaining debt is fully retired.

The system's capital needs total $5.5 million from fiscals 2015-2019 and include $3.6 million for various sewer line expansions and $1.9 million for upgrades to the biosolids system centrifuges. The system's ample liquidity affords management the ability to cash-fund the capital program.

STRONG OPERATING PROFILE, AFFORDABLE RATES

The city owns and operates a regional wastewater treatment plant (WWTP) with a customer base of about 49,800 that includes residents from the municipalities of Ivins, Santa Clara and Washington. Each city, including St. George, owns and operates their respective individual collection systems. The three municipalities which make up roughly 25% of the WWTP's treatment capacity have a contract with St. George to pay a pro rata share of overall operations and maintenance and debt service based on their respective number of sewer connections. Each contract lasts for 25 years and renews automatically unless a contractor notifies the city to the contrary. The city does not expect any changes to these contracts in the long term.

Every sewer customer pays a uniform $10.70 monthly charge that equates to about 0.3% of MHI, well below the Fitch affordability indicator of 1% for a single utility charge. This margin signals significant rate-raising flexibility; however, no additional rate changes are forecasted by management at this time.

Additional information is available at 'www.fitchratings.com'.

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 2014);

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013);

--'2015 Water and Sewer Medians' (December 2014);

--'2015 Outlook: Water and Sewer Sector' (December 2014).

Applicable Criteria and Related Research:

2015 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818410

2015 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818409

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=979458

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Contacts

Fitch Ratings
Primary Analyst
Eva D. Rippeteau
Associate Director
+1-212-908-9105
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eva D. Rippeteau
Associate Director
+1-212-908-9105
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Doug Scott
Managing Director
+1-512-215-3725
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com