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Fitch Rates Tampa Bay Water, FL's $81M Util Sys Rfdg & Improv Revs 'AA-'

Posted on: Thursday, 31 August 2006, 18:00 CDT

Fitch Ratings assigns an 'AA-' rating to Tampa Bay Water, Florida's (TBW, or the authority) approximately $80.65 million utility system refunding and improvement revenue bonds series 2006. The bonds are scheduled to sell the week of Sept. 11 via negotiation with Raymond James. In addition, Fitch affirms its 'AA-' rating on TBW's $1 billion in outstanding revenue bonds. The Rating Outlook is Stable.

The 'AA-' rating on TBW's revenue bonds reflects its sound operating structure, high-quality management, and success to date in meeting regional water supply demands, despite challenges at its seawater desalination plant. The authority has effectively developed new water supplies well in advance of mandated reductions in groundwater withdrawal, although demand projections and periodic drought conditions support continued urgency in seeking new sources. Continually identifying and funding additional projects that will provide sufficient water sources and satisfy environmental concerns is a continuing challenge.

TBW's financial reserves are sound, and the service area, with a population of more than two million, continues to grow and diversify. Under the strong security structure, six member governments (Hillsborough, Pasco, and Pinellas counties and the cities of New Port Richey, St. Petersburg, and Tampa) make several, not joint, operating expense payments to TBW for highly essential water supplies. Tampa is the only member government with its own separate water supply and the only member not charged the uniform rate required under the master water supply contract. Payments to TBW are made before disbursements to holders of respective city and county utility bonds, making the payments from member governments exceptionally well secured.

TBW's board is actively pursuing projects to increase supply in advance of projected needs beyond 2012. The next large project is expected to be the downstream enhancement project, which would be implemented in four phases and provide as much as 48 mgd (millions of gallons per day). The final phase, the downstream augmentation project, would inject treated wastewater from the City of Tampa downstream from the surface water intake. This would allow greater upstream water intake without environmental degradation. Funding sources, permit approvals, and project design are under consideration.

Remediation of TBW's seawater desalination facility, at a cost of about $40 million, is expected to be complete by the end of this calendar year. The plant has been operating at reduced capacity. Once the plant demonstrates an operating history, the full $85 million reimbursement from the Southwest Florida Water Management District (SWFWMD) will be released, which TBW would use to redeem outstanding series 2002 variable-rate bonds. Litigation against the plant's membrane manufacturer and its surety, and against two engineering firms involved in the original design, engineering, and construction of the facility, is pending with no resolution expected in the near future.

TBW's net revenue and fund balance provide a modest cushion above the rate covenant requirement, which requires sum-sufficient debt service coverage from annual revenues and 1.25 times (x) coverage when the fund balance is added to net revenues. Coverage of debt service by net revenues alone was only 1.01x for fiscal 2005; coverage rises to 1.34x when the fund balance is added.

Future borrowing plans include the sale of parity revenue bonds of approximately $85 million in 2009, assuming additional capital funding from SWFWMD. TBW finances interim capital construction costs with a commercial paper program.

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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