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Fitch Rates Miami-Dade County, Florida's $468MM Water & Sewer Revs 'A+'; Outlook Stable

Posted on: Tuesday, 8 July 2008, 18:00 CDT

Fitch Ratings assigns an 'A+' rating to Miami-Dade County (the county), FL's approximately $68 million water and sewer system revenue bonds, series 2008A and $400 million water and sewer system revenue refunding bonds, series 2008B. The bonds are scheduled to price July 10, 2008 through negotiated sale. Proceeds from the series 2008A bonds, together with other available funds, will be used to pay a portion of the cost to terminate an interest rate swap agreement while proceeds from the 2008B bonds will refund outstanding series 1994 parity bonds. At this time, Fitch also affirms the 'A+' rating on the county's $1.4 billion in outstanding parity debt (net of refunding). The Rating Outlook is Stable.

The 'A+' rating reflects the Miami-Dade Water and Sewer Department's (WASD) broad and diverse service area, sound historical financial operations, adequate water supply and treatment capacity, and low rates. Legal provisions are adequate. These strengths are offset by the continued growth in the size and scope of WASD's multi-year capital improvement plan (CIP), due in large part to regulation-driven capital needs typical of mature urban water and sewer systems. Further, recent legislation enacted by the state will require the system to make a considerable future capital investment to significantly reduce nutrient levels contained in all effluent disposed of through ocean outfalls and move to greater reuse of wastewater. The preliminary cost is estimated at $2 billion- $3 billion with state imposed deadlines occurring between 2018 and 2025. Fitch will monitor the system's progress in complying with the new state requirements and continue to evaluate the impact on the system's overall credit profile. Fitch believes that an inability to adopt rate increases over the next several years will jeopardize capital funding and pressure the overall financial position of WASD.

The largest water and wastewater utility in the Southeast, the system serves the majority of Miami-Dade's 2.4 million residents on a retail or wholesale basis. The Miami area is a leading trade, tourism, and financial services center and serves as a key U.S. import and export point for Latin American and Caribbean goods and services. Most economic indicators are strong: area job and resident labor force growth has been good, the unemployment rate continues to trend below the state and the national averages, and income levels are showing slight improvement relative to the state and nation.

The county's primary raw water source is the Biscayne Aquifer. Withdrawal is governed by a 20-year water consumptive use permit granted by the South Florida Water Management District (SFWMD) in November 2007. The recent completion of new wells and the implementation of an aquifer storage and recovery program that stores water in the Floridan Aquifer will assist in meeting immediate water supply needs. To meet longer term needs, WASD is developing a plan to provide ground water replenishment with highly treated reclaimed water as a means to offset an increase in allocation from the Biscayne Aquifer currently being sought, and to draw on brackish water from the Floridan Aquifer. Financing to construct a treatment plant with reverse osmosis capability needed to treat the brackish water is included in the current CIP, as well as funding for ongoing improvements required by the Safe Drinking Water Act. Wastewater treatment plants provide adequate capacity, though significant funding will be needed to continue compliance with consent decrees that require the adequate treatment, transmission, and disposal of peak wastewater flows.

Financial operations have stabilized in recent years, following a period of decline precipitated by a five-year moratorium on rate increases beginning in fiscal 1998. Rates were held constant from 1998-2003 and even experienced a 10% reduction in fiscal 2002 before the county adopted a 6% increase in each of fiscal years 2004 and 2005. While needed rate increases of 4.5% and 4.8% in fiscal years 2007 and 2008, respectively, have bolstered financial results, financial projections indicate that additional yearly rate increases of at least 6% will be required to fund the multi-year CIP and to maintain overall financial flexibility. Although the system's low rates provide significant flexibility, the county's history of rate inaction illustrates a challenge for WASD. Financial operations are sound, generating adequate debt service coverage and good liquidity. The system finished fiscal 2007 with 306 days cash on hand, and net revenues covered annual debt service by 1.3 times (x).

The CIP has grown substantially with the inclusion of additional projects needed to comply with regulatory requirements and the Comprehensive Everglades Restoration Plan (CERP), as well as asset rehabilitation and some expansion-related needs. Anticipated spending for 2009-2014 totals $2.9 billion, up considerably from the prior $1.3 billion 2006-2011 multi-year plan and excluding any future costs associated with the recently adopted state legislation. Approximately two-thirds of the plan will be debt-funded with annual revenue bond issuances anticipated through fiscal 2014.

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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