OREANDA-NEWS. Fitch Ratings affirms the 'A-' ratings for the following Florida Governmental Utility Authority, Florida (FGUA or the authority) Unified Utility System (Unified Utility or the system) bonds:

--Approximately $26 million utility revenue bonds, series 2013A;
--Approximately $1.3 million taxable utility revenue bonds, series 2013B.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a first lien pledge on the net operating revenues of the Unified Utility system, which includes 31 small retail water and wastewater systems located primarily in central Florida. The bonds are also secured by a cash-funded debt service reserve.

KEY RATING DRIVERS
STABLE FINANCIAL RESULTS: Debt service coverage (DSC) registered a sound 1.5x in both audited fiscal 2014 and unaudited fiscal 2015, aligning with management's projections. Unrestricted cash and reserves were also sound at over $2 million, or the equivalent of over 160 days cash on hand (DCOH).

DECLINING DEBT PROFILE: Debt levels are at a high point due to acquisition of the system in 2013 by FGUA. Debt levels are expected to slowly decline over time given the limited additional borrowing plans.

COSTLY RATES: User charges are high across most of the Unified Utility system, which could impair future flexibility. Rates are forecast to automatically increase by very modest amounts based on consumer price index.

LIMITED SERVICE AREA: The combined service areas are spread across 10 Florida counties with varying wealth levels. The systems are all quite small with predominantly residential customer bases.

STRONG MANAGEMENT TRACK RECORD: The authority's experience in acquiring and managing other utility systems offsets the limited management track record with the system.

RATING SENSITIVITIES
SERVICE AREA VULNERABILITIES: Given the small size of the individual utilities and the geographic concentration of the utilities in central Florida, economic pressures or regulatory developments could have a significant effect on operations.

CREDIT PROFILE

The Unified Utility is made of 31 smaller utilities in 10 counties throughout central Florida serving a population of approximately 19,000, which consists of over 7,900 water connections and about 1,900 sewer connections. The 30 utilities were purchased in 2013 as part of a larger overall acquisition. FGUA took over operations in March 2013.

The systems are located across a large area and are not interconnected. The expectation is for each system to continue to run as a stand-alone system. FGUA now has full rate authority over the systems that were previously rate regulated by the Florida Public Service Commission.

DISPERSED ECONOMIC BASE

The counties cover a wide range of counties in central Florida, an area hit particularly hard by the housing crisis. Most of the systems are very small in nature and represent individual neighborhoods/developments located in unincorporated areas of the counties. The majority of customers are residential accounts (98%), with wealth levels of the counties in the system generally falling below state and national levels. Three counties (Seminole, Orange and Lee) have wealth levels that are on par or slightly higher than the state and nation.

FINANCIAL RESULTS AS EXPECTED; IMPROVED REVENUES POSSIBLE

Audited 2014 financial results were largely on target at 1.5x, which includes the first full year of debt service. Management forecasts point to a continuation of stable DSC ranging from 1.5x to 1.6x. Unrestricted cash and cash reserves as of fiscal 2014 totals an adequate $2 million or the equivalent of 164 DCOH and is expected to grow gradually as the authority continues to implement additional policies related to past due fees and inactive account fees. FGUA targets DSC of 1.4x. Unanticipated increases in the system's fixed costs or a drop in revenues of over 10% could put pressure on FGUA's target DSC.

LIMITED RATE FLEXIBILITY

Most of the system rates for the individual retail utilities are considered high and register above Fitch's affordability threshold as well as above peer systems in the region. The average monthly bill for a residential customer using 4,000 gallons varies from a low of $34 for water service only to a high of $124 for combined water and sewer service. While only inflationary rate adjustments have been approved for implementation over the next five years, Fitch remains concerned that the high fixed costs and limited rate-raising flexibility may pose a challenge to future financial performance.

HIGH DEBT BURDEN BUT LIMITED FUTURE CAPITAL NEEDS

Due to the recent acquisition of the system, the debt burden on users is elevated with current debt per customer totaling $2,733, compared to the 'A' median of $2,351. Amortization of debt is slow, with 57% of principal maturing in 20 years. However, the system's debt profile is expected to improve over time as there is only limited borrowing anticipated. The fiscal 2016-2020 capital improvement plan totals a reasonable $4.8 million and will be funded from existing bond proceeds, a $1.2 million state revolving fund loan, system reserves and rate revenues.

STRONG MANAGEMENT TRACK RECORD

FGUA was formed in 1999 by an inter-local agreement to purchase a number of water systems in Florida from a private utility company. Current membership includes Lee, Polk, Citrus, Pasco, Hendry, and Marion counties. FGUA is managed by a governing board whose members include one representative of each county. FGUA has no employees; all services are provided on a contractual basis. FGUA's 11 systems are stand-alone and have closed loops. System management, operations and financing structures for each system are similar. This structural consistency provides stability in FGUA's management of utility systems.

FGUA-owned systems are operated under a utility operations and billing and customer service agreement with U.S. Water Services/Wade Trim, a contractor providing similar services throughout Florida. In addition, FGUA has retained Government Services Group, Inc., a private contractor, for the overall management of FGUA pursuant to a contract that expires in 2020.