OREANDA-NEWS. Fitch Ratings has affirmed its 'AA' rating on the following Central Weber Sewer Improvement District, Utah, bonds:

--$139.5 million sewer revenue bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by net sewer revenues after payment of operations and maintenance expenses.

KEY RATING DRIVERS
HEALTHY WHOLESALE SERVICE AREA: The district is the wholesale provider of essential wastewater treatment services to a sizable suburban service area of about 185,000 people on Utah's economically resilient Wasatch Front.

NARROW COVERAGE, EXTRAORDINARY LIQUIDITY: The district's debt service coverage (DSC) ratio was adequate at 1.4x in 2014. Fitch expects coverage to increase gradually over the next few years. A strong reserve position (1,631 days cash on hand (DCOH) at the end of 2014) and very stable revenues offset any concerns over the level of coverage.

STABLE REVENUES, RATE FLEXIBILITY: The utility's revenues are diverse and very stable, with wholesale sewer fees and property taxes as the primary revenue streams. Rates remain affordable.

WELL POSITIONED FOR GROWTH: The district completed construction of a major expansion of its treatment plant in 2011, improving the quality of its discharges and providing capacity for expected growth through the next two decades. Future capital needs are limited, and management plans no further borrowing.
HIGH DEBT LEVELS: The district's debt burden is high at $839 per capita and 76% of net plant assets. High debt levels reflect significant recent investments in the system and are expected to decline gradually over the next decade.

RATING SENSITIVITIES
COVERAGE CHANGES TO DRIVE RATING: The rating is sensitive to changes in the debt and financial profiles. The rating could come under upward pressure as debt declines, particularly if free cash to depreciation continues to climb.
CREDIT PROFILE
The district is located approximately 40 miles northwest of downtown Salt Lake City and covers about 73 square miles primarily in the central portion of Weber County. The district provides wholesale wastewater treatment to a population of roughly 185,000 through 16 municipal customers. The district also provides retail sewer treatment services to small areas that account for less than 1% of the district's annual revenues. The district's sewer system consists of one 65.1 million gallon per day wastewater treatment plant that is expected to accommodate growth through 2035.

SOLID SUBURBAN SERVICE AREA
The district serves an economically solid suburban service area on the northern edge of the dynamic Salt Lake City metropolitan area. Large employers in the area include Hill Air Force Base, Davis County and Weber County School Districts, Department of Treasury IRS and McKay-Dee Hospital Center. Unemployment trends below the national average; the Ogden-Clearfield metropolitan statistical area was at 3.7% in March 2016, compared to the nation's 4.7% non-seasonally adjusted jobless rate. Median household income (MHI) for Weber County is healthy at 105% of the national median and 94% of the state level.

COVERAGE DECLINES, REMAINS ADEQUATE
Financial performance is good. Fitch-calculated DSC averaged 1.4x in the three years ended Dec. 31, 2014 (audited) before increasing to 1.5x in 2015 (unaudited). Both results outperformed the issuer's projections at the time of the last rating. Coverage is slim compared to retail water and sewer systems at this rating category, but compares reasonably well to other wholesalers.

Fitch believes recent coverage is adequate, given very stable revenues, strong liquidity, limited capital needs and solid rate flexibility. The district's revenues are dominated by property taxes and flat sewer fees that do not vary with sewage flows, reducing the need for the excess coverage to withstand revenue volatility. Economically cyclical connection fees account for about 10% of revenues.

With minimal revenue volatility, excess coverage is primarily used to fund ongoing investments in the system. Free cash-to-depreciation has increased to above 80% from a low of 58% in 2012 (the first year of full debt service on the bonds). Continued improvement in free cash-to-depreciation would likely put upward pressure on the rating.
The district's liquidity has remained solidly above 'AAA' rating category medians. Reserves have remained at or above about 1,500 DCOH since 2009 and provide ample cushion against any plausible revenue shortfalls. Unrestricted cash and investments fell to $25.6 million, or 1,631 days cash, in 2014 from $35 million, or 2,258 days cash in 2013, due to pay-go capital spending.

SOLID RATE FLEXIBILITY AND DISCIPLINE
The district's board has raised rates as needed to maintain solid financial performance and appears to have good rate flexibility. Central Weber more than tripled its rates to accommodate debt service on its expanded treatment plant and has continued inflation-linked rate increases after a pause in 2014.

Rates remain low at the retail level despite the increasing treatment costs. Local retail bills reflect both Central Weber's treatment cost and the cost of local collection services. Charges are moderate at just 0.6% of MHI in the city of Ogden, the largest wholesale customer. The district sets rates to meet its revenue requirement and allocates charges to local retailers based on their population and assessed value, providing very stable and predictable revenues.

HIGH DEBT, NO BORROWING PLANNED
The wholesaler's debt burden is high, reflecting the recent expansion of the plant (its main capital asset), but is expected to decline over the next five years. Debt per capita of $839 at the end of 2014 was about 160% of the median for rated water and sewer utilities. Debt-to-net plant assets was also elevated at 76%. Debt is projected to fall to about $676 per capita in 2020, roughly 130% of the projected median debt for rated systems. Amortization is healthy with 43% of debt repaid in 10 years and 98% in 20 years.

The utility is well placed within its capital cycle following the wastewater treatment plant expansion. The district's five-year 2016-2020 capital improvement plan is very manageable at $21.6 million, down from over $30 million at the last review. The district plans to pay for the investments entirely from cash flows.