Correct: Fitch Assigns Initial 'A' Rtg to Pine Bluff, AR Sewer Revs.

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--Aug. 27, 2003

(A press release issued earlier today, included incorrect information in the headline. The amended release follows.)

Fitch Ratings-Austin-August 27, 2003: Fitch Ratings assigns an 'A' rating to Pine Bluff (the city), Arkansas' $4.9 million sewer revenue bonds, series 2003, scheduled to sell via negotiation by Morgan Keegan & Company, Inc. on August 27. Additionally, Fitch also assigns an 'A' rating to the city's outstanding debt comprised of $3 million sewer revenue bonds, series 1996A and $2.9 million sewer revenue bonds, series 2002. The Rating Outlook is Stable.

Bonds maturing on or after March 1, 2009 are subject to optional redemption at par plus accrued interest on March 1, 2008, or any date thereafter. Bond proceeds will be used to expand the city's wastewater treatment plant and to pay the costs of issuance.

The 'A' rating reflects the city's history of solid debt service coverage of its senior and subordinate sewer revenue debt, very rapid principal amortization, competitive rates, and limited future debt plans. Offsetting risks include concentration in its customer base due to several large industrial users. Completion of the new Interstate 530 is expected to spur commercial growth plus new sewer improvement districts in recently annexed areas will somewhat offset losses in its residential base to newer developments within the county.

Pine Bluff is the county seat of Jefferson County, located in the delta region of Arkansas. The city's 2000 population of about 55,000 declined modestly (3.6%) from its 1990 census count as residents have migrated to unincorporated regions of the county. Despite the modest contraction in its residential customer base, the city's commercial accounts have grown modestly and may accelerate due to the recent completion of Interstate 530. A Super Wal-Mart is the first major retailer to announce its plans to open in this new growth corridor. The City of Whitehall, a suburb of Pine Bluff, is experiencing residential growth, benefiting the city through its long-term contract to treat its sewage as a wholesale customer.

Although the city's sewer customer accounts are primarily residential (nearly 90%), this category comprised only about 40% of operating revenues in fiscal 2002, followed by industrial users at 33% and commercial at 15.8%. The city's top ten sewer customers account for a high of over 30% of operating revenues in fiscal 2002, led by Tyson Foods' (senior unsecured notes rated 'BBB-' by Fitch Ratings with Rating Outlook Negative) two chicken processing plants. In January 2004, the older Tyson facility will be closed and its operations consolidated with the remaining facility which is equipped with its own pre-treatment plant. As a result, the city will forego about $350 thousand in surcharges for extra-strength effluent but will continue to treat Tyson's total effluent discharge. Other large industrial users include a bakery and a manufacturer of steel belts for automotive tires.

The current offering will increase the city's wastewater treatment plant capacity by 40% in anticipation of commercial and industrial customer growth, including large food processing facilities. At its expanded capacity of 19 million gallons per day (mgd), the sewer system's only remaining capital needs are preliminarily estimated at $4.0 million for line improvements and pump station upgrades starting in fiscal 2007. In line with its historically moderate leverage position (about 25% debt to net plant in fiscal 2002), the city may use current resources to fund these improvements. Its very rapid principal pay out rate of 80% in ten years is also a credit positive. Operating under a draft permit, the city is expecting state renewal of its discharge permit in October 2003.

The city's sewer system's outstanding debt is comprised of about $6 million in revenue bonds on parity with the current offering. Subordinate debt totals about $3 million. Senior lien debt service coverage has been solid, ranging from 2.4x-2.7x during fiscal years 1999-2002. Total debt service coverage has also been solid at about 2x over the same period. Based on fiscal 2002 revenues, senior lien maximum annual debt service (MADS) coverage (including the current offering) is 2.2x. Starting in fiscal 2010, coverage will increase to nearly 5x due to a declining debt service schedule.

The financial performance of the city's sewer system has been strong, characterized by large albeit narrowing operating margins, ranging from nearly 30% in fiscal 1999 to about 17% in fiscal 2002. Liquidity levels have also been strong at over 200 days cash on hand in three of the last four years, including 300 days in fiscal 2002. A $1.1 million emergency fund is part of these cash reserves, to be used for repair and replacement in the event of catastrophic emergencies. As a closed loop system, no transfers to the general fund are made, including for indirect costs as the sewer system is a semi-autonomous system needing city council approval only for rate increases and debt issuance.