Fitch Rates Collier County Water-Sewer District, FL's Rfdg Revenue Bonds 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following Collier County Water & Sewer District, FL (the district) bonds:
--Approximately $51.15 million refunding revenue bonds, series 2016.
The bonds are scheduled to sell via competitive bid on April 26. The proceeds will be used to refund the district's series 2006 bonds for debt service savings.
In addition, Fitch affirms the following district bonds (pre-refunding):
--$60.2 million in outstanding water and sewer revenue bonds series 2006 at 'AAA'.
The Rating Outlook is Stable.
The bonds are payable from net revenues of the county's water and sewer systems, development fees, and the proceeds from any and all assessments against property benefited by the system. The bonds are additionally secured by a cash-funded debt service reserve fund.
KEY RATING DRIVERS
STRONG FINANCIAL METRICS: Financial results have consistently yielded strong debt service coverage (DSC) levels, robust liquidity, and sound operating margins.
IMPROVING DEBT BURDEN: System debt levels continue to decline and metrics are steadily improving. The utility plans to internally fund a five-year capital plan that is entirely dedicated to the renewal, replacement, and longevity of the system's relatively current infrastructure.
SUSTAINABLE CAPACITY AND OPERATIONS: Water supply and wastewater treatment capacity are abundant, providing significant flexibility to meet longer-term demand.
POSITIVE ECONOMIC INDICATORS: Recent economic indicators such as employment, housing values and housing starts show recovery. Fitch expects sound long-term population and economic growth, based on the county's very affluent tax base and recognition as a leading destination for tourism and leisure activity on Florida's Gulf Coast.
CONTINUED STRONG CREDIT FUNDAMENTALS: The rating is sensitive to shifts in various credit fundamentals. The Stable Outlook is based on Fitch's expectation that the system's positive financial, leverage, operational and economic growth trends are likely to continue.
The district serves the unincorporated communities of Collier County with over 65,000 mostly residential customer accounts and over 200,000 residents. Collier County (implied general obligation rating of 'AA+' with a Stable Outlook by Fitch) is located along the Gulf of Mexico in southwestern Florida.
EXCELLENT FINANCIAL PERFORMANCE
The system's strong financial profile is evidenced by consistently strong financial metrics. Unrestricted cash at year-end in fiscal 2014 of $141 million equated to 740 days of operations with unaudited fiscal 2015 showing similar results. Liquidity has averaged nearly 800 days for the past five years despite a primarily cash-funded capital program and is predicted to remain robust going forward.
Net revenues available for annual debt service (ADS) yielded extremely high DSC levels in fiscal 2014 of 5.1x senior lien DSC and 4.0x when excluding development fees. Coverage of all debt, including subordinate revolving fund loans, was also very healthy at 2.4x (1.8x excluding development fees). Unaudited fiscal 2015 financial results yield 5.8x senior lien DSC and 2.6x all-in coverage. Despite conservative revenue and expenditure forecasts, management forecasts that DSC levels will remain strong at over 6.0x and 2.0x for senior and all-in liens, respectively.
Water and sewer charges are considered affordable and rank favorably compared to neighboring utilities. Management reviews rates annually and recommends increases to the county commission for approval. Rates were adjusted upwards in fiscals 2015 and 2016 and are approved to increase again in 2017. A rate study is currently planned to consider both rate and development fee charge adjustments through 2020. Based on historic approval by the county commission and relative rate affordability, the district retains ample flexibility to levy rate increases in the future.
IMPROVING DEBT PROFILE
The system's debt profile continues to improve as evidenced by steadily lower annual debt carrying costs. Debt-to-net-plant was only 25% in 2014 and total ADS as a percentage of gross revenues was a manageable 20%. No additional debt is currently planned by management in the near term, and therefore fixed costs should continue to decline.
INTERNALLY SUPPORTED CAPITAL PLAN
The system's fiscal 2016 - 2020 year capital improvement plan (CIP) totals $300.1 million and is planned to be entirely funded on a pay-go basis. Major capital upgrades were completed in 2005 and since then most capital spending has been dedicated to maintaining the system in a state of good repair as well as funding design for future projects. The current CIP will continue to fund renewal and replacement but will also focus on additional distribution and conveyance projects in order to provide redundancy between both water and wastewater treatment plants for system-wide service reliability.
Residential and commercial development is projected to continue at its current vigorous pace, with $11.1 million development fees collected in 2014 and an (unaudited) $12.6 million collected in 2015. Management has forecasted similar development fees over the next two years and moderate declines for fiscals 2018-2020.
STRONG OPERATING PROFILE
The system has ample raw water supply and water and sewer treatment capacity to meet expected demand for the foreseeable future. Water supply is regulated by the South Florida Water Management District under a consumptive use permit that expires in 2036. The county has a total permitted groundwater allocation of 56.1 million gallons per day (mgd), and a treatment capacity of 52 mgd, both of which compare favorably to average daily demand of about 23 mgd.
Wastewater is treated by both the North and South county-owned and operated wastewater treatment plants and combined treatment capacity is well in excess of average annual demand. One of the system's largest capital projects will construct a south-to-north interconnection pipe to send wastewater flows north as treatment capacity at the South Plant becomes pressured with new development.
ROBUST SERVICE AREA ECONOMY
The county is the largest in the state encompassing 2,026 square miles and includes a portion of the Everglades National Park and home to popular destinations including the city of Naples and Marco Island. In 2015, the county had an estimated population of 344,000.
Economic activity centers on leisure and hospitality and retail trade, making it vulnerable to seasonal unemployment. However, county unemployment rates over the last two years have been better than the state and national averages, reversing a trend from prior years. As of January 2016 unemployment decreased year-over-year to 4.8%, which remains lower than the state and national averages of 5.1% and 5.3%, respectively. County wealth levels as measured by median household income are above average at 119% of state and 105% of the U.S.