Fitch Rates Edinburg, Texas' Utility System Revenue Bonds 'A+'; Outlook Stable
Source: Business Wire
-- Approximately $1.7 million utility system revenue refunding bonds, series 2010.
The bonds are scheduled to sell via negotiation the week of March 2, 2010. At this time, Fitch also takes the following rating action:
--$21 million outstanding utility system revenue bonds (prior to refunding), affirmed at 'A+'.
The Rating Outlook is Stable.
RATING RATIONALE:
-- Financial performance in terms of debt service and liquidity is very good and is expected to remain solid.
-- Leverage ratios are low and are projected to remain reasonable even with planned debt issuances.
-- Debt amortization is rapid.
-- Rates are affordable with room for projected increases.
-- Water supply is adequate.
-- The service area is diverse and experiencing rapid growth.
KEY RATING DRIVERS:
-- Maintenance of sound financial metrics is a key credit driver.
-- A rapidly growing customer population could place operational, and consequently, financial pressure on the system.
SECURITY:
The bonds are secured by a first lien on and pledge of the net revenues of the city's combined waterworks and sewer system.
CREDIT SUMMARY:
Financial performance has been sound, with senior lien annual debt service (ADS) coverage levels averaging 2.9 times (x) over the fiscal 2004-2008 period. All-In ADS coverage has also been solid, averaging 2.7x over the same period. Unaudited figures for fiscal 2009 indicate a continuation of this trend, and coverage levels are projected to remain strong through at least fiscal 2014 even with planned debt issuance. Other financial metrics also have been favorable, including liquidity levels which have been above 330 days cash on hand since fiscal 2004; Fitch expects reserves to remain at comparable levels over the foreseeable future.
Capital needs are moderate and total $42.4 million through fiscal 2014. In total, 66% of funding sources are expected to be provided from debt, including a state loan. Currently, leverage ratios are low, with outstanding debt per customer at just $685. Despite the amount of planned debt, fixed costs are projected to remain below categorical medians. Debt amortization is rapid at 57% and 99% in 10 and 20 years, respectively.
Edinburg provides retail service to over 70,000 people within the city. The city purchases raw water on a wholesale basis from two Hidalgo County irrigation districts, which are supplied by reservoirs on the Rio Grande, for the bulk of the city's water needs. As agricultural land continued to be developed for residential use, water rights are likely to continue to be converted from agricultural to municipal use, thereby ensuring sufficient supplies for ongoing development. The city has secured some of these water rights through long-term leases and believes its water supply is sufficient to meet its long-term needs through 2040.
The city's customer base has grown by a rapid annual average of 5.5% over the past five years for water customers and 5.9% for wastewater customers, which has increased the rate base and enabled the city to minimize rate increases. The city's monthly residential water and sewer charge of $37.07 for 10,000 gallons of water and 6,000 gallons of wastewater is well below average and is second lowest in the area. Consequently, rates are very affordable at just 1.3% of median household income. Rates were increased by 5% in fiscal 2008 and most recently by 5% in fiscal 2010. Even with additional projected rate increases averaging 3.2% annually over the next five years, rates should remain affordable. Despite some concentration among the largest users, the customer base is well diversified, and the top 10 largest customers (19% of fiscal 2008 sales) are mostly government institutions.
Located 20 miles from the U.S.-Mexico border, Edinburg (general obligation bonds rated 'A+' by Fitch) is the seat of Hidalgo County in southern Texas. Edinburg's population grew 40% during the latest census period and increased another 40% from 2000-2005. The McAllen-Edinburg-Mission area was the fourth fastest growing metropolitan statistical area (MSA) in the U.S. from 1990-2000, growing by 48.5%. Energy production, health care, higher education and tourism are components of the local economy that have developed in recent years to complement the distribution, international trade, and agricultural sectors that have historically been present. As a result, the city's unemployment rate has steadily trended downward, and is now below state and national levels at 6.7% as of December 2009. However, resident wealth levels remain substantially lower than that of the remainder of the state and nation, although the below-average cost of living somewhat offsets these conditions.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:
--'Revenue-Supported Rating Criteria', (Dec. 29, 2009);
--'Water and Sewer Revenue Bond Rating Guidelines', (Aug. 6, 2008).
Additional information is available at www.fitchratings.com.
Contact:
Fitch Ratings, Austin
Julie Seebach, 512-215-3740
Jose Acosta, 512-215-3726
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com
