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Fitch Rates Eagle Mountain City, Utah's $16.5MM Water & Sewer Revs 'A'; Outlook Stable

Posted on: Wednesday, 25 July 2007, 18:25 CDT

Fitch Ratings has assigned an initial 'A' rating to Eagle Mountain City, Utah's $16.5 million water and sewer revenue and refunding bonds, series 2007. The bonds are scheduled to sell via negotiation by A.G. Edwards & Sons, Inc. on August 7th. The Rating Outlook is Stable.

The 'A' rating on the city of Eagle Mountain's water and sewer revenue refunding bonds is based on the system's strong financial position with high debt service coverage levels and essential service. Credit concerns include the city's rapidly growing customer base, reliance on connection charges, and limited economic base. Water and sewer rates are affordable and the systems' capital improvement plan benefits from good management.

The water system provides potable water service to city residents from three city-owned wells and a contract with the Central Utah Water Conservancy District. Customer accounts for the water system total just over 3,700, with growth averaging a high 21% annually over the last four fiscal years. The city requires new residential developers to donate water rights as a prerequisite for construction and collects impact fees for construction of water facilities, helping ensure water availability for city residents as the city continues to develop. The sewer system serves mainly the city's southern portion, while sewer connections in the city's northern portion are serviced by the Timpanogos Special Service District as part of a 50 year agreement.

Financial performance has been good over the last three fiscal years despite heavy dependence on impact fee revenues. Including these one-time revenue sources, the system maintains strong coverage levels and cash balances. Fiscal 2006 estimated unrestricted cash and investments equal 1,161 days of operating expenditures and transfers outs. With the issuance of the current offering, projections indicate solid debt service annual coverage of at least 2.9 times (x) through fiscal 2011. Excluding impact fees, coverage levels remain adequate reaching at least 1.2x through fiscal 2011.

Proceeds from these bonds will refund all outstanding series 2000 bonds and help finance various system capital improvements. Proceeds will also be used to purchase 400 acre feet of water from the Central Utah Water Conservancy District. Near term needs beyond those funded from this issuance are limited and are expected paid almost entirely from a $6.6 million state loan.

The city is primarily a residential community located in northwestern Utah County approximately 30 miles northwest of the Orem-Provo metropolitan area. Since its recent incorporation in 1997, the city's population has experienced explosive growth, and from 2000 the population increased from around 3,500 people to the current estimate of 20,775. Historically, the county's unemployment rate has remained slightly below that of the state and nation, falling to a low 2.8% in 2006. The city's tax base has grown a strong 18% on average since 2001 with further residential development expected in the near future.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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