SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings takes the following actions on DuPage County, IL's waterworks and sewerage project revenue bonds as part of its continuous surveillance efforts:
--$7.7 million waterworks and sewerage project and refunding net revenue first lien bonds, series 2008A affirmed at 'AAA';
--$7.7 million waterworks and sewerage project net revenue second lien bonds, series 2008B affirmed at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The DuPage County waterworks and sewerage system (the system) has a broad service area with ample system capacity, minimal growth pressures and modest capital needs.
--Rates are competitive and rate flexibility is evidenced by the sizable upgrades in recent years to fund capital improvements.
--Financial performance has strengthened with recently implemented rate increases.
--Debt burden is low and amortization is rapid.
KEY RATING DRIVER:
--The system's financial performance is projected to improve debt service coverage to levels appropriate for the rating category in the current fiscal year.
SECURITY:
Senior debt is secured by a first lien on pledged net revenues and assets in associated reserve funds. Second lien bonds are secured by a second lien on net revenues and assets in associated reserve funds, junior only to the first lien bonds.
CREDIT SUMMARY:
The DuPage County water and sewerage revenue bonds ratings reflects the system's mature demand profile, sound financial performance, limited capital needs, and strong oversight by county administration. DuPage County's Department of Public Works operates the system and is responsible for water and sewer service not offered by other local governments within the county. The population served by the system is approximately 160,000, representing about 17% of the county total. The majority of service provided by the system is wastewater with approximately 36,000 customers and limited growth except from septic system conversions. The water system serves six separate small systems within the county with a combined customer count of approximately 3,000. Treatment capacity for both systems is adequate. Both systems are in regulatory compliance and well-maintained, with limited future capital requirements.
The county is finalizing the conversion of its water supply to Lake Michigan water from well water, although the wells will be maintained as a back-up supply. Three of the six water systems have been converted. A rate study completed in 2009 revised the county's rate structure and resulted in rate increases in fiscal years 2010 and 2011. The rates are designed to achieve customer equity across systems and compensate for the lower usage pattern that began in 2009, related primarily to the economic recession. Rate increases for water customers ranged from 12% to 20%, while sewer rates increased 4%. Despite the increases, rates are still competitive in the region. The rate structure includes a line item that collects the amount owed to purchase Lake Michigan water, so any rate increases for the water supply are passed through to customers on a real-time basis. The county is conducting another rate study in 2011 to evaluate the potential need for rate adjustments in the next four years.
The system's financial performance declined in fiscal 2009 with lower usage levels but has recovered in fiscal 2010 (based on unaudited financial information) with the first of two approved rate increases. Debt service coverage of the senior bonds is expected to be 3.3 times (x) in fiscal 2010 and coverage of all obligations, including the EPA junior lien, is more modest at 1.1x. These coverage levels are projected to increase in fiscal 2011 to 4.9x, and 1.6x respectively. Liquidity is healthy at $18.5 million at the end of fiscal 2009, or 430 days operating cash, although this includes some construction funds. Debt outstanding is limited to the $7.7 million outstanding in senior lien series 2008A bonds and $7.7 million outstanding in subordinate lien series 2008B bonds. The county also has a $3.3 million loan from the Illinois Environmental Protection Agency that is paid junior to the subordinate lien bonds. The debt obligation is included in Fitch's all-in debt service coverage calculation.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated 8 October 2010.
--'Water and Sewer Revenue Bond Rating Guidelines', dated 6 Aug. 2008.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
Water and Sewer Revenue Bond Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=395918
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