Fitch Affirms Collier County, FL's Water & Sewer District Revs at 'AAA'

NEW YORK--()--Fitch Ratings has affirmed the 'AAA' rating for the following Collier County, Water & Sewer District, Florida (the district) revenue bonds:

--$60.2 million water and sewer revenue bonds series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from net revenues of the county's water and sewer systems, connection fees, and the proceeds from any and all assessments against property benefited by the system. The bonds are additionally secured by a cash-funded debt service reserve fund.

KEY RATING DRIVERS

CONTINUED FINANCIAL STRENGTH: Financial results have consistently yielded strong debt service coverage (DSC) levels, robust liquidity, and sound operating margins.

IMPROVING DEBT BURDEN: System debt levels continue to decline and metrics are steadily improving. The utility plans to internally fund a five-year capital plan that is entirely dedicated to the renewal, replacement, and longevity of the system's relatively current infrastructure.

SUSTAINABLE CAPACITY AND OPERATIONS: Water supply and wastewater treatment capacity are abundant, providing significant flexibility to meet longer-term demand.

STABLE ECONOMY: Recent economic indicators such as employment, housing values and housing starts show a strengthened economy. Fitch expects sound long-term population and economic growth based on the county's very affluent tax base and recognition as a leading destination for tourism and leisure activity on Florida's Gulf Coast.

RATING SENSITIVITIES

CONTINUED STRONG CREDIT FUNDAMENTALS: The rating is sensitive to shifts in various credit fundamentals. The Stable Outlook is based on Fitch's expectation that the system's positive financial, leverage, operational and economic growth trends are likely to continue.

CREDIT PROFILE

Collier County (implied general obligation rating of 'AA+' with a Stable Outlook by Fitch) is located along the Gulf of Mexico in southwestern Florida. The county encompasses a portion of the Everglades National Park and is home to popular destinations including the city of Naples and Marco Island. The water and sewer systems serve over 55,000 mostly residential customer accounts and over 200,000 residents, both permanent and seasonal, in the unincorporated communities of Collier County.

EXCELLENT FINANCIAL PERFORMANCE

The system's strong financial profile is evidenced by consistently strong financial metrics. Unrestricted cash at year-end in fiscal 2014 of $141 million equated to 740 days of operations. Liquidity has averaged nearly 800 days for the past five years despite a primarily cash-funded capital program and is predicted to remain robust going forward.

Net revenues available for annual debt service (ADS) yielded extremely high DSC levels in fiscal 2014 of 5.1x senior lien DSC and 4.0x when excluding connection fees. Coverage of all debt, including subordinate revolving fund loans, was also very healthy at 2.4x (1.8x excluding connection fees). Unaudited fiscal 2015 financial results yield 5.8x senior lien DSC and 2.6x all-in coverage. Despite conservative revenue and expenditure forecasts, management forecasts that DSC levels will remain strong at over 6.0x and 2.0x for senior and all-in liens, respectively.

Water and sewer charges are considered affordable and rank favorably compared to neighboring utilities. Management reviews rates annually and recommends increases to the county commission for approval. Rates were adjusted upwards in fiscals 2015 and 2016 and are approved to increase again in 2017. A rate study is currently planned to consider both rate and connection fee charge adjustments through 2020. Based on historic approval by the county commission and relative rate affordability, the district retains ample flexibility to levy rate increases in the future.

IMPROVING DEBT PROFILE

The system's debt profile continues to improve as evidenced by steadily lower annual debt carrying costs. Debt-to-net-plant was only 25% in 2014 and total ADS as a percentage of gross revenues was a manageable 20%. No additional debt is currently planned by management in the near-term and therefore fixed costs should continue to decline.

INTERNALLY SUPPORTED CAPITAL PLAN

The system's fiscal 2016 - 2020 year capital improvement plan (CIP) totals $300.1 million and will be funded entirely by user rates. Major capital upgrades were completed in 2005 and since then most capital spending has been dedicated to maintaining the system in a state of good repair as well as funding design for future projects. The current CIP will continue to fund renewal and replacement but will also focus on additional distribution and conveyance projects in order to provide redundancy between both water and wastewater treatment plants for system-wide service reliability.

Residential and commercial development, funded entirely by connection fees, is projected to continue at its current vigorous pace, with $11.1 million collected in 2014 and an (unaudited) $12.6 million collected in 2015. Management has conservatively budgeted $9.4 million annually for fiscals 2016-2020.

STRONG OPERATING PROFILE

The system has ample raw water supply and water and sewer treatment capacity to meet expected demand for the foreseeable future. Water supply is regulated by the South Florida Water Management District under a consumptive use permit that expires in 2036. The county has a total permitted groundwater allocation of 56.1 million gallons per day (mgd), and a treatment capacity of 52 mgd, both of which compare favorably to average daily demand of about 23 mgd.

Wastewater is treated by both the North and South county-owned and operated wastewater treatment plants and combined treatment capacity is well in excess of average annual demand. One of the system's largest capital projects will construct a south-to-north interconnection pipe to send wastewater flows north as treatment capacity at the South Plant becomes pressured with new development.

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

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

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

U.S. Water and Sewer Revenue Bond Rating Criteria (pub. 03 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869223

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=996913

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996913

Endorsement Policy

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

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.

Contacts

Fitch Ratings
Primary Analyst
Eva Rippeteau
Associate Director
+1-212-908-9105
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Andrew DeStefano
Director
+1-212-908-1284
or
Committee Chairperson
Kathy Masterson
Senior Director
+1-512-215-3730
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Eva Rippeteau
Associate Director
+1-212-908-9105
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Andrew DeStefano
Director
+1-212-908-1284
or
Committee Chairperson
Kathy Masterson
Senior Director
+1-512-215-3730
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com