Bangkok--22 May--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'A' long-term rating, and a stable outlook, to Pima County, Ariz.'s sewer system revenue bonds, taxable Build America bonds (BABs) series 2010A and tax-exempt 2010B.
The rating reflects our opinion of the Pima County sewer system's:
Service area that encompasses the large and diverse Pima County ('AA-' general obligation rating) regional economy, including the city of Tucson;
Approved rate increases through fiscal 2014 that system officials forecast will improve debt service coverage (DSC) ratios and allow for diminished historical reliance on connection fees; and
Consistently strong system liquidity since fiscal 2005 at no less than 153 days of operations, backed by a formal policy to target three months' operations as well as an emergency fund with $20 million of cash by fiscal 2012.
Factors that partially offset these strengths in our opinion include the utility's:
Historical reliance on connection fees in recent years when debt service coverage without such fees was close to zero;
Bond provisions that include a somewhat permissive additional bonds test (ABT) and rate covenant; and Substantial capital plan totaling $975 million in the next 10 years, $812 million of which occurs in the next four fiscal years to comply with regulatory permit requirements by fiscal 2014.
"The stable outlook reflects our view of the district's projected diminished reliance on connection fees given several recent and upcoming large rate increases, especially important when considering the recent decline in growth within the county," said Standard & Poor's credit analyst Sussan Corson.
Given the forecast debt service increases and the county's large capital needs, our rating reflects our expectation that management will closely monitor the pace of development and adjust rates as necessary to maintain adequate DSC and liquidity. In addition, the outlook reflects our expectation that the system will maintain good operating cash and cash reserves in line with its policies, which should help to mitigate any potential future late interest subsidy payments by the federal government. Limiting upward rating movement are the somewhat permissive ABT and rate covenant that allows for unrestricted cash balances in the revenue calculation as well as the system's large capital improvement plan and some lingering dependence on future growth-related revenues to maintain good coverage ratios.
An interest in the net revenues of the sewer system paid by the county pursuant to a purchase agreement secure the bonds. The lien on net system revenues for the series 2010A and 2010B bonds are subject to a prior lien of such revenues for previously issued system revenue debt.
The Pima County Regional Wastewater Reclamation Department provides wastewater collection and treatment services to 260,000 customers in the Tucson metropolitan statistical area, as well as outlying service areas.
RELATED CRITERIA AND RESEARCHUSPF Criteria: Key Water And Sewer Utility Credit Ratio Ranges, Sept.15, 2008
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Media Contact:
Ana Sandoval, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
Paul Dyson, San Francisco (1) 415-371-5079