NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA+' rating on the following Manatee, County, FL (the county) revenue bonds:
--$88.1 million public utilities revenue refunding and improvement bonds, series 2015.
Proceeds of the series 2015 bonds will be used to advance refund a portion of the county's public utilities revenue bonds, series 2006; to finance and reimburse the county for certain system additions, extensions and improvements; and to pay for issuance costs.
The bonds are scheduled for negotiated sale the week of March 30.
In addition, Fitch affirms the 'AA+' rating on the following:
--$96.7 million public utilities revenue refunding and improvement bonds.
The Rating Outlook is Stable.
The bonds are payable from the net water, sewer, solid waste and stormwater revenues of the county's public utilities system (the system).
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: The system has routinely generated solid financial metrics including substantial debt service coverage (DSC) and robust liquidity. Conservative pro forma projects a slight decline in these metrics to accommodate the additional debt, yet both DSC and liquidity are expected to remain aligned with the 'AA' medians.
CONTINUED RATE AFFORDABILITY: The system's combined water, sewer and solid waste collection rates have remained affordable over time and are anticipated to remain so despite proposed rate increases. The utility does not currently levy a stormwater charge.
MANAGEABLE SYSTEM LEVERAGE: Debt levels and associated metrics are low and are expected to remain consistent with the 'AA' median category even with the current issuance and possible near-term future bond issues.
STRONG OPERATING PROFILE: Water supply is diverse and abundant and overall system capacity is solid. The solid waste system consists mainly of curbside collection (direct fee for service on combined utility bill) via private waste haulers under separate franchise agreements.
DIVERSE ECONOMY: The economy includes a diverse mix of services, retail, manufacturing and tourism. Strong job growth, increasing housing values and expanding building permit activity support sustained economic improvement.
CONTINUED STRONG FINANCIAL RESULTS: The rating is sensitive to shifts in fundamental credit characteristics, including management's ability to achieve strong DSC and liquidity forecasts given increasing debt levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Manatee County (non-ad valorem revenue bonds rated 'AA+' by Fitch) is located along the Gulf of Mexico in central Florida and has an estimated total population nearing 350,000 residents.
STABLE, RESIDENTIAL CUSTOMER BASE
The Manatee County Utility Department (MCUD) manages the water, sewer, solid waste and stormwater services for an estimated 260,000 residents, or roughly 74% of the total population, living in both urban and unincorporated portions of the county. The system serves 107,540 water customers, 94,960 sewer connections, and over 132,000 solid waste curbside collection customers.
The county also provides wholesale service to several independent systems. Sarasota County (utility system rated 'AA' with a Positive Outlook by Fitch), the cities of Bradenton and Palmetto, and the town of Longboat Key are each provided with potable water through long-term water supply contracts. These contracts include fixed monthly fees as well as volumetric charges. Bradenton and Longboat Key are also sewer customers of the county. Both retail and wholesale customer concentration is minimal.
CONTINUED STRONG FINANCIAL PERFORMANCE EXPECTED
The county has demonstrated consistently solid financial performance in recent years as characterized by strong DSC, low annual debt service (ADS) carrying costs, and ample liquidity. This trend of healthy financial metrics continued in fiscal 2014 as nearly $42 million in net revenues available for debt service produced 2.8x DSC of senior lien bonds (not including facility investment fees [FIFs], which are the equivalent of impact fees). The system also recorded $161 million of unrestricted cash in fiscal 2014, which equated to about 556 days' cash on hand. When including over $7 million available in excess funds in the solid waste landfill closure escrow account (above the fund's annual liability), liquidity is closer to 580 days.
Fitch expects liquidity to stay strong reflecting $25 million to $30 million in projected excess cash flows through fiscal 2019. According to the financial forecast compiled by a bond feasibility consultant, ADS, including both the series 2015 and anticipated series 2017 bonds, will not exceed 13% of gross revenues through fiscal 2019. Also, DSC is projected to decline slightly but stay positive in the 1.8x to 2x range (excluding FIFs). Forecast assumptions are considered reasonable and consistent with historical growth. Revenue projections are further bolstered by projected rate increases.
LOW RATES PROVIDE FLEXIBILITY
The county has sole rate-setting authority. Water and wastewater rates were raised by 3% in fiscal 2013 but not raised in fiscal 2014. Going forward the board has authorized 4.75% rate increases for both water and sewer in fiscals 2015 and 2016. Management expects to increase rates again by 3% annually through fiscal 2019. In addition, management will likely increase solid waste collection charges to track inflation, or by about 2% annually, through fiscal 2019.
The typical residential customer consumes approximately 5,000 gallons of water per month (gpm), for which it pays about $18.50 for water and $40 for sewer. The combined charge equates to 1.5% of median household income (MHI), below Fitch's 2% MHI affordability threshold. An additional charge of $13.61 for twice-weekly garbage collection brings the total monthly customer cost to about $72. The county does not charge a separate stormwater fee. The average MCUD customer's utility rates are considered affordable and compare favorably to those charged by neighboring systems, providing ample rate-raising flexibility. Fitch estimates that if consumption levels were more reflective of the national 7,500 gpm average, rates would still remain relatively affordable.
LOW DEBT ENABLES ADDITIONAL LEVERAGE
The system's five-year, fiscal 2015-2019 capital improvement plan (CIP) totals $356 million and focuses primarily on renewal and replacement projects of the water distribution and sewer collection systems, intended to reverse the trend of an aging system. Landfill capital costs total $16 million, about 4% of total CIP spending, and focus primarily on the expansion of the gas collection system. The stormwater system's capital needs include canal dredging.
The CIP will be funded with roughly 60% recurring revenue and the remaining 40% with the current bond issue as well as additional debt of a similar amount expected in fiscal 2017. Proceeds of the series 2015 bonds will support the CIP by funding water filtration upgrades, wastewater force main rehabilitation and nutrient treatment system modifications.
The system's debt burden is low and enables the absorption of the current and anticipated future issuance while remaining in 'AA' median territory. In fiscal 2014, the system's total debt outstanding equated to only $612 per customer, less than a third of the 'AA' median. Debt-to-net assets was also low at just 17%, and ADS carrying costs were a very low 10% of gross revenues ('AA' medians are 50% and 23%, respectively). With the addition of the series 2015 bonds, debt per customer is projected to increase to a still modest $1,104 in fiscal 2015. Assuming the issuance of the series 2017 bonds, debt per customer is projected to stay modest but increase to just over $1,000 by fiscal 2019. The combined series 2015 and projected 2017 issuances are expected to total nearly $150 million and almost double the system's existing debt load. As a result, debt-to-plant and debt-to-equity will also rise but these metrics will likely remain within the acceptable 'AA' median range.
SOLID SYSTEM INFRASTRUCTURE AND CAPACITY
The water system's 54 million gallons per day (mgd) treatment capacity comfortably meets the average annual demand from both retail and bulk customers of about 44 mgd. Water supply is considered solid and the county believes current resources will be sufficient for the next 20 years. The wastewater system provides secondary treatment, with most of the treated effluent reused for agricultural and golf course use. Treatment capacity remains solid overall with only a 66% utilization rate in fiscal 2014.
The solid waste system consists of the county-owned Lena Road Landfill and curb-side garbage collection. The landfill has a 31-year estimated useful life and contains leachate management facilities and a gas collection system. Landfill closure and post-closure care costs are estimated to be $51.4 million and the county contributes annually into an escrow account to pay for these costs. As of fiscal 2014, the county had set aside approximately $35 million for this account.
FRANCHISE AGREEMENTS PROVIDE DE FACTO FLOW CONTROL
Garbage collection is contracted with two waste-hauling companies via separate franchise agreements. The agreements were recently renewed for a second consecutive seven-year term from 2016 through 2023, providing the county with de facto flow control. The solid waste system accounts for about 26% of gross system revenues, and most of the revenues, about 80%, are derived from curbside collection fees included on each customer's combined monthly utility bill. The remaining revenues come from tipping fees the haulers pay to dump non-contracted waste at the landfill.
ECONOMIC RECOVERY CONTINUES
Much of the county serves as a suburban area of the city of Tampa and its location along Florida's gulf-coast attracts retirees and tourists. The county's economic base is diverse and the major sectors consist of services, retail, manufacturing and construction, tourism and agriculture. The presence of Port Manatee, Florida's fifth largest deep-water seaport, adds to local economic activity, although volume at the port has declined in recent years.
After losing nearly 14% of its employment base between 2006 and 2010, the county is experiencing a robust jobs recovery that continues to strengthen. County-wide employment has shown great improvement in recent years. The 5.5% unemployment rate in November 2014 tracked that of the state's and marked a significant decline from November 2012, when the rate was 8%.
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);
--'Solid Waste Revenue Bond Rating Criteria' (June 2014).
Applicable Criteria and Related Research:
2015 Outlook: Water and Sewer Sector
2015 Water and Sewer Medians
Revenue-Supported Rating Criteria