AUSTIN--(BUSINESS WIRE)--Fitch Ratings affirms the following Athens-Clarke County Unified Government, GA (the county) outstanding revenue bonds:
--$223.9 million water and sewerage revenue bonds at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Athens-Clarke County's (ACC, or the county) water and sewer system's sound financial management and proactive capital planning efforts have resulted in high cash reserves and ample water supply and overall treatment capacity.
--The system is highly leveraged with a narrow margin of debt service coverage; however, future capital plans are very manageable.
--The combined monthly bill remains affordable as a percentage of median household income (MHI), though the monthly bill is approaching Fitch's affordability threshold; nevertheless, county wealth levels are well-below state and national levels and thus mask the overall low total monthly charges.
--ACC has an established service area anchored by the presence of the University of Georgia which provides flexibility and stability.
KEY RATING DRIVERS:
--Further deterioration in debt service coverage could result in negative rating action.
--Declining reserves beyond current levels could limit financial flexibility.
--Future rate increases will be needed to support the rise in fixed costs resulting from the series 2008 bond issuance.
SECURITY:
The bonds are secured by net revenues of the water and wastewater system.
CREDIT SUMMARY:
Financial operations are sound, generating solid operating margins, and reduced though still good liquidity. The system was expected to draw down its cash position to $50 million by fiscal 2010; however, unrestricted cash levels at $28 million, equating to 595 days cash on hand, are lower than previously anticipated and below the historical five-year average of over 1,400 days cash. Nevertheless, liquidity concerns are offset by the county's decision to take a penalty-free early payment provision to fully repay a 2007 state revolving fund loan in the amount of $20 million, which helped to also lower the system's high debt load. The series 2008 bond issuance left the system highly leveraged. Consequently, as expected, senior lien annual debt service (ADS) coverage has declined precipitously to 1.4 times (x) in fiscal 2010, slightly below the system's policy-imposed minimum coverage level of 1.5x. Senior ADS coverage is forecast to drop to a low of 1.2x in fiscal years 2011 and 2012, which is lower than previously projected and further removed from the system's policy-imposed minimum coverage level. Fitch will continue to monitor this trend, as further deterioration in senior ADS coverage could lead to negative rating action.
Officials do not expect to issue additional senior-lien debt and anticipate building debt service coverage levels back up to the 1.5x threshold by fiscal 2015 by implementing above-average annual rate increases of about 7%. ACC does maintain sole rating-setting authority, and the average monthly combined water and sewer bill is affordable at 1.8% of MHI. While the monthly bill is approaching Fitch's affordability threshold of 2.0%, a low combined average monthly bill of $50.46 (as of fiscal 2010) is masked by county wealth levels that are 30% lower than state and national averages.
The system's 2011-2015 capital improvement plan (CIP) is very manageable, totaling a modest $21 million. While capital needs measured over the 2009 to 2018 period had been projected at about $341 million, the 10-year CIP may come in approximately 27% lower if current average annual capital costs hold steady. Almost all of the CIP is focused on system improvements and implementation of an automatic meter reading system. The CIP is expected to be entirely funded from pay-go as no additional debt or loan issuances are planned.
The system's primary water supply is derived from both the North Oconee and the Middle Oconee Rivers. As one of four member governments in the Upper Oconee Basin Water Authority (the authority), the system has access to an additional 25.5 million gallons daily (mgd) from the Bear Creek Reservoir, leaving the system with an abundant water supply. The terms of the water supply agreement, which does not expire until 2046, requires that the county pay the authority 44% of the authority's annual expenditures (net of any debt service obligations) for the reservoir only, which equals its equity share in the authority. Of the system's three wastewater treatment facilities, one is currently being replaced with a larger facility, and the remaining two are in the final stages of being expanded and improved. The facilities are expected to be placed online in the fall of 2011, at which point the wastewater system's overall treatment capacity will increase from 18 mgd to 28 mgd. For water and wastewater, all regulatory permits are current, and treatment capacity is sufficient for the foreseeable future.
Athens-Clarke County, a unified government since 1991, is located approximately 65 miles northeast of Atlanta, GA and is anchored by the University of Georgia. The water and sewer systems serve about 95% and 55%, respectively, of the county's population, which totaled approximately 116,300 in 2009. Unlike the Atlanta metro region, growth in customer accounts has been moderate, increasing by about 1.1% annually. County unemployment rates at 7.2% are well below state (9.6%) and national (9.0%) levels as of October 2010.
In addition to the sources of information identified in the U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
--'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 6, 2008.
--'2010 Water and Sewer Medians', dated Jan. 18, 2011.
--'2010 Water and Sewer Sector Outlook', dated Jan. 18, 2011.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Water and Sewer Revenue Bond Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=395918
2010 Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=509146
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
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