Fitch Rates Crane Co. Water District (TX) ULTs 'A'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has assigned an 'A' rating to the following Crane County Water District, TX (the district) bonds:

--$40 million unlimited tax bonds, series 2015.

The bonds are expected to price via negotiation the week of Aug. 24, pending market conditions. Proceeds from the bonds will be used to construct, acquire, and equip improvements to the district's water system, including acquisition of land and water rights.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district payable from an annual ad valorem tax levied against all taxable property in the district, without legal limit as to rate or amount.

KEY RATING DRIVERS

LIMITED, MINERAL-CONCENTRATED ECONOMY: The local economy is based on mineral production and agriculture. The tax base is highly concentrated in mineral production, subject to an above-average level of volatility associated with oil prices and production. Population growth and median household income approximate that of the U.S. The unemployment rate is low.

LACK OF OPERATING RISK: The district does not operate the water system. It is authorized only to acquire water facilities, lease, purchase, or acquire water rights, and develop water sources. The 'A' rating reflects the lack of operating risk.

MANAGEABLE LONG-TERM LIABILITIES: Fitch anticipates the district's debt burden to remain moderate based on the lack of additional issuance plans, a moderate amortization rate, and the district's limited scope. The district has no pension or other-post employment benefit obligations.

RATING SENSITIVITIES

INSUFFICIENCY OF TAX COLLECTIONS: Diminishment of the tax base to an extent that pressures remaining taxpayers and leads to an insufficiency of tax collections in relation to debt service would result in negative rating action.

CREDIT PROFILE

The Crane County Water District, located approximately 30 miles south of Odessa, is a conservation and reclamation district with statutory authority to acquire water facilities, underground sources of water and to lease or purchase water rights.

HISTORY OF DISTRICT FUNCTIONS

The district issued debt in 1986 to develop a water field and construct infrastructure to deliver water to the city of Crane and surrounding areas in the county. The district has been dormant since the end of 1998 at which time the 1986 bonds were paid in full. The city of Crane operates and maintains the water system pursuant to a contract entered into by the city of Crane and the district in 1986.

The existing water production and transmission facilities require improvements to remain in regulatory compliance and to continue to operate. On Nov. 4, 2014, voters authorized the district to issue $40 million of general obligation (GO) bonds to fund these system improvements and procure water rights to increase long-term system capacity.

The district began to reestablish and update financial and administrative agreements early in 2015 in anticipation of the debt issuance and system improvement project. The city of Crane will continue to operate and maintain the system pursuant to an updated interlocal agreement with a term through 2045, beyond the life of the series 2015 bonds. The district has contracted with the city and county to provide a variety of administrative services, including collection of ad valorem taxes and payment of debt service.

MODERATE DEBT BURDEN

The district's post-issuance debt burden is a moderate 2.9% of fiscal 2016 market value, but a high $9,270 per capita. The $40 million series 2015 GO issuance represents the district's only debt.

The $40 million issuance was based on an engineering report that evaluated the current water supply life expectancy and production and transmission system infrastructure condition. New water right capacity is expected to exceed 50 years based on Texas Water Development Board projected water use growth and taking into account estimated oil industry usage needs.

The debt is structured with level debt service and a 20 year term. Overlapping debt consists of $5.9 million in outstanding Crane Independent School District obligations. Fitch anticipates the district's debt burden to remain stable in the near term based on the lack of additional issuance plans and a moderate amortization rate of 42% in 10 years.

HIGHLY CONCENTRATED TAX BASE

The district's tax base is concentrated in mineral production and is sensitive to changes in oil prices. The top 10 taxpayers account for 61% of fiscal 2016 taxable assessed valuation (TAV). The county's tax base is coterminous with the county, whose TAV has realized strong 9.9% compound annual growth (CAGR) between 2005 and 2015 and moderate 2.8% CAGR between 1993 and 2015 despite the boom and bust cycles associated with oil price volatility.

The district's fiscal 2016 TAV declined a steep 31% from $2.2 billion to $1.5 billion due to steep oil price declines over the past year. Fitch anticipates further TAV declines if oil prices remain low or fall further. However, the district's ability to raise the interest & sinking fund tax rate allows the district to generate a levy sufficient to service the debt. The district's $0.22 per $100 of TAV rate will represent about 10% of the county's overall tax rate. Representative total tax collection rates as measured by collection rates of the school district and recent county collections are between 99.7% and 101.5%.

LIMITED ECONOMY; AVERAGE ECONOMIC METRICS

The county's compound annual population growth of 0.9% since 2000 is on par with that of the nation, but below the 1.9% CAGR of the state during the same period. The county's median household income is equal to 97% of the state and 95% of the U.S. average.

A 3.1% CAGR of the county's employment base between 2005 and 2014 reflects an extended period of rising oil prices. A low county unemployment rate of 4.2% as of March 2015 is up slightly from 3.8% in March 2014 and benefits from the stabilizing influence of the school district and county. Fitch expects further contraction of the employment base would follow an extended period of low oil prices.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989859

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989859

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, CFA, CPA
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, Texas 78701
or
Secondary Analyst
Steve Murray
Senior Manager
+1-512-215-3729
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer, CFA, CPA
Director
+1-512-215-3733
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, Texas 78701
or
Secondary Analyst
Steve Murray
Senior Manager
+1-512-215-3729
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com