OREANDA-NEWS. Fitch Ratings assigns an 'AA-'rating to the following Nueces River Authority, TX (NRA, or the authority) revenue bonds:

--\\$64 million water supply facilities revenue refunding bonds (City of Corpus Christi Lake Texana Project), series 2015.

The Rating Outlook is Stable.

SECURITY

The bonds constitute special obligations of the authority, payable and secured solely by a first lien on and pledge of payments made by the City of Corpus Christi, Texas (the city) to the authority under a water transmission facilities contract (the contract).

The obligation of the city to make payments under the contract is an operation and maintenance expense of its combined water, wastewater and gas utility system.

KEY RATING DRIVERS

OBLIGOR DRIVES RATING: The pledge securing the authority's revenue bonds is an operations and maintenance (O&M) expense of the city's combined utility system (the system). The pledge is superior to the pledged security on the system's priority lien (lien now legally closed) revenue bonds. Consequently, the rating on the authority's bonds is directly tied to that of the system. The credit profile of the system is good. Fitch last affirmed the system's priority lien revenue bonds at 'AA-' with a Stable Outlook on June 19, 2015.

STRONG LEGAL PROTECTIONS: Legal protections are strong, with an unconditional obligation of the city to pay debt service requirements from gross system revenues.

PROJECT ESSENTIALITY: The current issue refunds bonds that the authority issued to construct a 101-mile pipeline from the city to Lake Texana, to access 41,480 acre-feet of water the city had purchased from the Lavaca-Navidad River Authority (LNRA). The project was completed in 1998 and was conveyed by the authority to the city in 1999. The project was essential to the operation of the system, and helped meet conditions resulting from a severe drought.

RATING SENSITIVITIES

CHANGES TO OBLIGOR RATING: Shifts in the credit quality of Corpus Christi, TX's system likely would translate into a corresponding change to the authority's ratings.

CREDIT PROFILE

The authority was created by the Texas Legislature in 1935 for the purpose of securing adequate water supplies in the Nueces River watershed. The service area of the authority includes nearly 18,000 square miles of land, including all or portions of 22 counties that lie wholly or partially over the Nueces River Basin. It is bordered by the San Antonio River Basin on the east and the Rio Grande Basin on the west.

The authority is governed by a 21-member board of directors who serve staggered six-year terms. The board members are appointed by the governor, with the consent of the senate, and must reside in a county located wholly or partly within the authority's boundaries.

The Nueces River Authority is the only regional agency having jurisdiction in water matters exclusive to the Nueces River Basin. As such, the authority serves as an interface between local and regional water interests in state-level policy makers, and brings water concerns of its constituents before state-level regulatory agencies and the Texas Legislature and promotes broad goals of water policy on the regional and local level.

ESSENTIAL CORPUS CHRISTI PROJECT
The Bureau of Reclamation (BR) had initially estimated that the combined dependable yield of the reservoir at the Choke Canyon Reservoir Project (CCRP) - a dam, spillway and 691,130 acre-foot reservoir at the Choke Canyon site on the Frio River that was completed in 1982 - and Lake Corpus Christi combined would be approximately 252,000 acre-feet per year in the year 2010. The dependable yield was reevaluated in 1990 and re-estimated at 181,000 acre-feet per year. Water inflows to the reservoirs from 1993 to 1996 reached the lowest on record and storage levels fell to 25% of capacity.

In response to the drought, the city and the authority built a 101-mile pipeline from the city to Lake Texana, near Victoria, to access 41,480 acre-feet of water the city had purchased from LNRA, the owner of Lake Texana. The authority issued the revenue bonds to finance the construction of the majority of the pipeline and two pump stations constituting the project. The project was completed in 1998 and conveyed by the authority to the city in 1999. The water owned by the city at Lake Texana, together with additional supplies the city has secured from the lake, increased the city's firm water supply by approximately 50,840 acre-feet, annually.

The city and the authority entered into a Water Transmission Facilities Contract (the contract) for the purpose of financing and constructing the project. Under the contract, the city is obligated to pay debt service related to the authority's bonds issued to finance the project, and debt service on any bonds issued to refund the outstanding bonds.

STRONG LEGAL COVENANTS
Pursuant to the contract, the city has an unconditional obligation to pay debt service from gross system revenues. The contract shall remain in force and effect until the debt service on all of the outstanding bonds has been paid. The pledged revenues are directly deposited into the debt service fund for the payment of principal and interest on the bonds.

ADEQUATE FINANCIAL PROFILE OF CORPUS CHRISTI
The city's system debt service coverage (DSC) and liquidity metrics are currently average and consistent with the rating level but liquidity levels are low. Fitch calculated all-in DSC declined to 1.3x in fiscal 2013 from 1.9x the previous year, as expected with increased debt service. All-in DSC in fiscal 2014 was slightly higher at 1.5x but reflected a 14-month audit period (the city changed its year-end to Sept. 30 from July 31), which included two months additional net revenues but the same annual debt service, given the maturity date of the city's bonds. Comparison of certain year-to-year metrics is difficult given the 14-month audit period.

Fitch's all-in DSC calculation includes the LNRA contract payment and NRA Lake Texana project revenue bonds as an operating expense and the Bureau of Reclamation contract payment as debt service. Priority-lien DSC has strengthened as a result of the city's creation of a subordinate lien and the movement of debt to this lien. Priority-lien coverage was strong at 2.5x and should continue to increase over time with the closure of the priority lien. These coverage calculations are prior to transfers to the city's general fund that are modest at 3%.

In future years, all-in DSC is projected to remain adequate at around 1.2x, as junior lien debt service is expected to increase significantly to \\$47 million in fiscal 2016 from \\$15 million in fiscal 2013. While DSC levels are forecast to decline, actual results have historically exceeded the very conservative projections; thus the rating reflects Fitch's expectation that coverage margins will likely outperform the forecast. Consistent performance at materially lower coverage levels would likely put pressure on the ratings.

Liquidity levels have fluctuated between 73 and 296 days cash over the past five years, which is low for the rating category, as compared to Fitch's water and sewer median for the 'A' category of 366 days cash on hand. Unrestricted cash was accumulated in fiscals 2012 and 2013 reaching a high of \\$89.5 million in fiscal 2013, or 296 days cash on hand. In fiscal 2014, cash balances were spent down on construction of the Mary Rhodes II pipeline although reimbursement of those funds occurred with the 2015A & B bond issuance. Future liquidity levels in fiscal 2015 and beyond are expected to be in range of the city's minimum policy of 90 days of operations with excess cash amounts transferred to the city's capital fund to help reduce 100% debt funding of the capital plan.

EXPANDING ECONOMY
Situated on the Gulf Coast, Corpus Christi is the eighth largest city in Texas and serves as the regional economic center for a 12-county area. The city's 2014 population is estimated at 316,381.

The city's economic base consists primarily of petrochemical and shipping, tourism, agriculture, higher education and the military. Overall economic activity is up given the city's proximity to the large and productive Eagle Ford Shale oil/gas formation in neighboring counties. Management reports various commercial/industrial projects underway or planned, which generally will capitalize upon the area's traditional economic strength in the energy sector and associated industries.