Fitch Rates North Ft. Bend County Water Authority, Texas $138MM Revs 'A-'
Source: Business Wire
The 'A-' rating reflects the adequate legal structure; the essential service provided and strong regulatory provisions; relatively low cost of service; limited operating history along with narrow anticipated financial margins; slow principal amortization; and construction risk associated with a large capital program that is expected to be predominantly debt financed. The authority was created in 2005 as a wholesale water provider to assist groundwater pumpers in converting to alternative water supplies in accordance with regulatory requirements. While annual debt service (ADS) coverage levels are expected to be at or near 1.0 times (x), the authority maintains sufficient operating capacity at the current rating level.
Predominantly residential in nature, the authority's service territory includes around one-third of the population within Fort Bend County (the county). The area has experienced extensive land subsidence as a result of groundwater pumping, which has resulted in the Fort Bend Subsidence District (FBSD) promulgating strict requirements for pumpers to convert to alternative sources of supplies (i.e. surface water) either individually or collectively in stages. Consequently, the authority has adopted, and the FBSD has approved, the authority's groundwater reduction plan (GRP), which incorporates construction of a water distribution system and purchase of treated water from the city for sale to groundwater users within the authority's service area. The authority also has contracted to include certain pumpers outside its service area for inclusion in the GRP.
The GRP is designed to meet more stringent pumping restrictions in 2013 and 2025. This issuance, along with an additional series of bonds of around $60 million in 2011, will meet the initial 2013 requirements. Total capital costs for conversion to surface water supplies through 2025 are estimated at around $890 million, with debt issued to construct such capital to be paid from a combination of GRP fees collected by the authority along with sales of surface water upon construction of the system. Given its role as a wholesaler, financial margins are expected to be limited, including ADS coverage at or near the sum sufficient rate covenant.
Despite the expected financial performance, legal provisions are sufficient and include a coverage reserve equal to 25% of maximum ADS (MADS) in addition to a debt service reserve fund. The authority is also required to maintain an operating and maintenance (O&M) reserve equal to two months of budgeted O&M expenditures.
While the capital costs associated with the GRP are large and amortization of the current offering is slow with just around 60% of principal maturing in 20 years, pass-through costs to end users are not expected be significant. GRP fees currently equal just $0.60 per 1,000 gallons of water pumped and are only anticipated to increase to around $1.85 per 1,000 gallons with the sale of surface water in 2013. Consequently, a typical residential customer using 10,000 gallons per month currently pays costs from the authority at a rate of around 0.1% of median household income (MHI) and will pay around 0.3% of MHI in 2013.
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