Fitch Affirms McAllen, Texas' Waterworks & Sewer System Revs at 'AA'; Outlook Stable
Source: Business Wire
--$2,085,000 WW&SS improvement revenue bonds, series 1999, affirmed at 'AA';
--$640,000 WW&SS improvement revenue bonds, series 2000, affirmed at 'AA';
--$24,580,000 WW&SS improvement revenue and refunding bonds, series 2005, affirmed at 'AA'; and
--$37,870,000 WW&SS improvement revenue and refunding bonds, series 2006, affirmed at 'AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The utility system's financial performance is consistently strong, demonstrated through solid debt service coverage and liquidity.
--The system's conservative management maintains strong financial policies and practices that facilitate the generation of substantial reserves and ability to cash fund capital projects.
--The system's low combined charges for services provide substantial flexibility for rate increases.
--The system's moderate capital plan remains manageable and will be funded through both available cash resources and long-term debt.
KEY RATING DRIVERS:
--Given the sizeable planned pay-go spending of the forecast period, the management of adequate cash reserves is integral to maintain the current rating.
--The maintenance of strong debt service coverage commensurate with the rating category is also key to the current credit quality.
SECURITY:
The bonds are special obligations of the city payable from a prior and first lien on and pledge of net revenues of the system.
CREDIT SUMMARY:
Financial operations over the past five fiscal years have been characterized by positive operating margins and solid liquidity. Fiscal 2008 net revenues provided strong annual debt service coverage of 2.8x and liquidity at 294 days of cash on hand. The fiscal 2009 unaudited results point to debt service coverage at 2.0x. The city's five-year forecast depicts debt service coverage at reduced levels ranging from 1.5x to 1.8x from fiscal 2010 to 2014 as debt service costs related to the CIP rise, but management budgets conservatively and actual results are typically better than projections. By virtue of having among the lowest cost for services within the region, substantial rate flexibility is afforded, if needed.
The system's CIP for fiscal 2010 to 2014 totals a moderate $102 million, comprised primarily of wastewater system projects related to a new plant that will be sized to accommodate ongoing growth. Approximately $40 million of the project costs will be funded with a zero percent interest loan through the federal stimulus program that is being administered by the Texas Water Development Board. The city annually funds depreciation and capital improvement reserve funds providing cash for about 60% of its CIP. The system's debt per customer levels and pace of principal amortization compare favorably to other utilities in the rating category.
The water system serves a customer base of about 41,000. The city purchases untreated water through open irrigation canal systems by three districts and its existing water rights are deemed sufficient through the next 20 years. The wastewater system serves approximately 36,000 customers, with treatment provided by its own two wastewater plants. McAllen (GO Bonds rated 'AA' by Fitch) has an estimated population of 130,000 and is located in Hidalgo County, approximately 230 miles south of San Antonio and seven miles north of the border from Reynosa and Tamaulipas, Mexico. The city is part of a rapidly growing metropolitan statistical area that includes Edinburg and Mission, Texas, as well as populous neighbors to the south of the border. McAllen has benefited from trade with Mexico, with government, tourism and agriculture components rounding out the local economy.
These rating actions reflect the application of Fitch's current criteria which are available at 'www.fitchratings.com' and specifically include the following reports:
--'Revenue-Supported Rating Criteria', dated Dec. 29, 2009;
--'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 6, 2008.
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings
Gabriela Gutierrez, +1-512-215-3731 (Austin)
Julie Seebach, +1-512-215-3740 (Austin)
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
