Fitch Affirms Colleyville, TX Waterworks & Sewer System Rev Bonds at 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed its 'AAA' rating on the following Colleyville, Texas (the city) waterworks and sewer system (the system) bonds:
--$505,000 waterworks and sewer system revenue refunding bonds, series 2010.
The Rating Outlook is Stable.
The bonds are secured by a first lien pledge on net revenues of the system.
KEY RATING DRIVERS
LOW DEBT; LIMITED CAPITAL NEEDS: The system features low leverage with rapid amortization and limited capital needs that are being funded on a pay-go basis. Conservative financial management has resulted in a stable operating history, strong debt service coverage and sound liquidity.
RATE FLEXIBILITY: Water and sewer rates remain well below 2% of median household income (MHI) despite annual pass-through of rate hikes and above-average per-customer water use. High wealth levels afford this flexibility given that the local MHI is nearly 3x the national average.
RELIANCE ON WHOLESALE PROVIDER: The city is susceptible to operating cost pressure from Trinity River Authority (TRA), its wholesale water and wastewater provider. Credit concerns regarding its reliance on TRA services are somewhat offset by the city's policy to pass through rate hikes.
STABLE SERVICE AREA: The city's water and sewer system provides an essential service to a small but stable service area within the broad and diverse Dallas-Fort Worth metro area.
MAINTENANCE OF STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit factors. Preservation of the system's solid financial profile consistent with the high credit rating is a key consideration.
The city (general obligation bonds rated 'AAA' by Fitch) is located in the Dallas Fort-Worth Metroplex, 11 miles northeast of Fort Worth and 22 miles northwest of Dallas. The system serves a population estimated at 23,740 with 9,770 water and 8,975 sewer connections. Build-out is estimated at a population of roughly 26,000.
STRONG FINANCIAL METRICS
Annual debt service (ADS) coverage levels in fiscal 2011-2015 have ranged between 2.9x to a high 4.8x net of pay-go spending and transfers out to the general fund for administrative overhead and franchise fees. The system debt is nearing full maturity in fiscal 2018. Projected coverage between fiscal 2016 to 2018 ranges between 3.4x and 11x, net of transfers out. The wide range of coverage stems from the descending nature of the debt service payments due in those three years.
Liquidity levels are also solid. At the close of fiscal 2015, the city reported 313 days cash on hand and 389 days of working capital. Although liquidity is expected to decline due to pay-go capital outlays, the projected liquidity in fiscal 2018 is a strong 254 days.
The city maintains rate flexibility as user charges are the third lowest among seven surrounding cities. Moreover, it is the city's policy to pass through rate increases of TRA and, as such, annual rate hikes have been implemented to maintain its strong financial metrics. The system's outstanding debt is low and future capital needs, which are planned to be funded on a pay-go basis, are limited. Fitch rates TRA's Tarrant County Water Project (TCWP) revenue bonds at 'AA' and TRA's Central Regional Wastewater System (CRWS) Revenue Bonds at 'AA+'.
RELIANCE ON WHOLESALER
Treated water is provided by the TRA's TCWP. Under the contract with TRA, the city pays a participant share equal to 22% of TRA's operations and maintenance (O&M) expenses and debt service costs associated with the TCWP. Its contract with TRA extends until all of the TCWP related bonds are paid off.
Additional water supply needs may be met through TRA capacity, or the city may purchase treated water from the city of Fort Worth through an existing emergency interconnect with its neighboring city of North Richland Hills. The construction of a groundwater storage tank on the western part of the city is projected to provide sufficient storage for full build-out.
The city's wastewater is treated by TRA's CRWS. Similar to the water contract, the city makes equal monthly payments for TRA's O&M and debt service costs associated with the wastewater project based on its participant share (about 2% of projects costs). In both cases, the contract payments made by the city constitute an O&M expense of the system.