Fitch Rates Denver County Board of Water Commissioners' Revs 'AA+'; Outlook Stable
Source: Business Wire
At this time, Fitch also affirms the 'AA+' rating on the board's outstanding debt consisting of:
--$100 million master resolution water revenue bonds, series 2007A;
--$174.5 million water revenue bonds, which are senior to the master resolution bonds.
The bonds are payable from a subordinate pledge of and lien on the net revenues of the board's water system (the system). The Rating Outlook is Stable.
The high-grade 'AA+' rating on the senior and master resolution bonds reflects the board's trend of favorable operating results and substantial liquidity, stable and diverse customer and economic bases, rate flexibility, and manageable capital program. The water system (the system) covers a sizeable service area made up of Denver and about 68 treated water distributors who rely on the board as their sole water source. Water supplies are adequate to meet customer demands.
The 2009A bonds represent the third installment of junior lien bonds issued under the master resolution (the board's 2008A clean renewable energy tax credit master resolution bonds are not rated by Fitch). Bond covenants, which include a 1.1 times (x) all-in annual debt service requirement, are essentially the same as senior lien bonds with the exception of order of payment priority. The recent master resolution also allows the board the ability of issuing variable-rate debt and executing swap agreements, although neither is currently contemplated. The parity rating between senior lien bonds and master resolution bonds reflects the closed lien structure of the senior bonds, which does not even allow for refunding bonds, and the relatively limited debt burden of the system.
The board is an independent agency of the city governed by a five-member board of commissioners appointed by the mayor of the city for six-year terms. Water supply is derived from renewable mountain snowmelt from an extensive 4,000-square-mile watershed, which replenishes the system's 12 raw water reservoirs annually. The service area recently experienced the worst drought on record, requiring the board to implement water restrictions and impose surcharges. However, recent levels of high precipitation have replenished most reservoirs. While the board has lifted all mandatory restrictions and eliminated surcharges, the potential threat of drought conditions remains a credit concern.
System financial performance remains solid despite the drought, evidenced by the maintenance of healthy debt service coverage and strong liquidity levels. Debt service coverage margins for all system debt have ranged between 2.2 times (x) to 4.8x since fiscal 2003, including system development charges. While all-in debt service coverage is projected to dip to a low of 2.0x in fiscal 2009, debt service levels are expected to rebound to historical levels by 2012. Liquidity is significant, with unaudited fiscal 2008 results pointing to around 587 days of operating expenditures in cash and investments. Despite frequent and ongoing rate hikes, the board maintains financial flexibility through its relatively low water rates in comparison to other Colorado water distributors.
The 10-year fiscal 2009-2018 capital improvement plan (CIP) is a substantial $965 million with approximately 47% of the CIP funded from sources other than bond proceeds. Also, customer debt levels are low, which coupled with rapid amortization of all debt, provides sufficient leveraging capacity, if needed. As part of funding the CIP and ensuring financial performance, the board anticipates moderate annual rate hikes of 7% over the next couple of years followed by gradual reductions to around inflationary levels at the end of the CIP.
As both a regional and economic center and the state capital, Denver's economic base is diverse. Nonetheless, employment in the area declined for three consecutive years in 2000-2003, led by large losses in its telecommunications and high technology jobs. Employment gains returned in 2004 and continue at a good pace. The area's unemployment rate rose to 5.5% in 2008 and was tracking the national average at 8.7% in February of 2009.
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.
Contact:
Fitch Ratings
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Doug Scott, +1-512-215-3725, Austin
Jose Acosta, +1-512-215-3726, Austin
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