OREANDA-NEWS. Fitch Ratings assigns an 'A+' rating to the following bonds of Greater New Haven Water Pollution Control Authority, CT (the authority):

--Approximately $14.6 million regional wastewater system refunding revenue bonds, 2016 series A.

The bonds are scheduled for negotiated sale on Feb. 25. Proceeds will refund outstanding parity bonds for level interest cost savings, cash fund a debt service reserve fund and pay costs of issuance.

In addition, Fitch affirms the 'A+' rating on the authority's approximately $101.6 million in outstanding regional wastewater system revenue bonds, 2005 series A, 2008 series A, 2012 series B and 2014 series B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien on net wastewater revenues of the authority. Outstanding bonds are also secured by a cash funded debt service reserve.

KEY RATING DRIVERS

STABLE SERVICE AREA: The authority provides wastewater collection and treatment to a sizeable service area anchored by Yale University, Yale-New Haven Hospital, Quinnipiac University and Southern CT State University. The customer base is diverse and revenue collection remains strong.

SUFFICIENT FLEXIBILITY: the authority's ability and demonstrated willingness to raise rates independent of outside regulation or oversight provides needed flexibility needed to meet rising debt levels.

SOUND FINANCIAL METRICS: Financial results have continued at a sound level over the last several years, attributable to increased rates and modest growth in demand. Debt service coverage (DSC) has been adequate, averaging nearly 1.6x over the prior three fiscal years, and a strong unrestricted cash position currently provides about 600 days of cash on hand. Fitch expects similar results going forward based on the authority's current financial forecast.

LEVERAGE REMAINS ABOVE AVERAGE: Historically high debt levels have shown some improvement but remain elevated.

MANAGEABLE CAPITAL PROGRAM: Capital needs, despite the inclusion of regulatory requirements, are not onerous. However, additional debt issuance is forecast to fund the vast majority of the authority's capital program, resulting in an estimated 23% increase in total leverage.

RATING SENSITIVITIES

HIGHER THAN FORECAST DEBT LEVELS: Escalation in Greater New Haven Water Pollution Control Authority's current debt levels in excess of what is currently forecast would be viewed negatively and could ultimately pressure the current rating over time.

OUTPERFORMANCE OF PROJECTIONS: The authority continues to demonstrate its ability to outperform its conservative financial projections. A departure from this trend would be viewed negatively.

CREDIT PROFILE

The authority was created in 2005 to be a regional wastewater utility providing wastewater collection and treatment on a retail basis to approximately 47,700 customer accounts located in the cities of New Haven (general obligation [GO] bonds rated 'A-'/Outlook Stable), Hamden (GO bonds rated 'BBB+'/Outlook Stable), East Haven and Woodbridge.

Almost half of the authority's existing customer base resides in New Haven, 30% in Hamden, 21% in East Haven and the balance in Woodbridge. In total, the authority serves an estimated population of almost 200,000. The customer base is diverse, with revenue derived from the 10 largest customers accounting for less than 14% of gross system revenues.

AMPLE TREATMENT CAPACITY

The authority's lone treatment plant provides ample treatment capacity and is reportedly in adequate repair. The plant has an average daily design flow capacity of 40 million gallons per day (mgd) and provides primary and secondary treatment for all wastewater influent up to 60 mgd. Average daily flows gradually declined during and immediately following the recent economic recession but have since grown modestly over the prior three fiscal years to about 33 mgd, leaving significant excess treatment capacity.

The wastewater system remains party to a negotiated consent order with the state EPA related to combined sewer overflow (CSO) issues, although the requirements under the order do not appear onerous. Longer term, management anticipates completing all projects included in the consent order by about 2023. Spending requirements and the completion deadline are determined to an extent by an affordability component built into the order, which provides flexibility and is viewed favorably by Fitch.

FINANCIAL RESULTS REMAIN SOUND
All-in debt service coverage of 1.66x for fiscal 2015 exceeded the prior year's forecast, as expected, but remained somewhat low relative to Fitch's median ratios for the rating category. Liquidity strengthened, increasing for the sixth consecutive year to nearly $33 million, equal to about 600 days of cash on hand.

The most recent forecast including in the authority's latest cost of service study spans fiscal years 2016-2020 and conservatively assumes no growth in usage or the number of customers served. Financial projections also incorporate additional leverage totaling approximately $63.5 million, leading to a continued escalation in annual debt service costs through the current planning period. Additional rate increases are also programmed into the forecast, providing for relatively weaker annual DSC of no less than 1.15x. However, the authority consistently outperforms its financial projections by achieving financial results more in line with the current rating. Fitch expects this trend will continue.

Outstanding debt as a percentage of system assets and debt to funds available for debt service (FADS) continue to approximate the medians for similarly rated utilities, but leverage on a per capita and per customer basis remain somewhat high at about $700 and $3,000, respectively. Annual debt service accounted for a manageable 27% of gross revenue in fiscal 2014 and should stay close to that level through the current forecast period. Debt levels will rise in support of the current capital program and could ultimately pressure the rating absent offsetting rate increases needed to maintain current financial metrics.

Annual rate hikes have been manageable but have risen by an above average annual rate of 7.5%, leaving the average monthly residential bill at about $34. Overall, charges are slightly above Fitch's affordability metrics, equal to 1.1% of median household income for the city of New Haven. Financial projections through fiscal 2020 incorporate slightly smaller rate hikes ranging from 5%-7% annually, which appear manageable but will push charges even higher.

Economic indicators for the collective region are somewhat weak but have yet to impair the authority's ability and willingness to raise rates or maintain strong collections. Through December 2016, unemployment rates in three of the four cities served by the authority were no higher than 6.5%. Median household income in New Haven equals just three-quarters of the U.S. figure and less than two-thirds of the wealthier state figure. More concerning is the city's poverty rate, which, at 26.9%, is almost twice the national rate. Per capita and median household income data for the smaller cities served by the authority is not available, although the cities are believed to be somewhat more affluent than New Haven.