Correct: Fitch Rts Utah WFA $23.4MM Revs 'A+'; Lwrs South Jordan Water Bonds to 'A+'.

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--Aug. 12, 2003

(A press release issued yesterday omitted the downgrade of South Jordan, UT outstanding city water system revenue bonds. The corrected press release follows.)

Fitch Ratings assigns an underlying 'A+' rating to the Utah Water Finance Agency's (the agency) approximately $23.4 million revenue bonds (pooled loan financing program), series 2003B (the agency bonds). The agency bonds will be issued on behalf of the City of South Jordan, Utah (the city), the obligor for repayment of the agency bonds. In addition, Fitch downgrades the $3.2 million of outstanding city water system revenue bonds to 'A+' from 'AA-'. The city's outstanding bonds are on parity with the agency bonds. The Rating Outlook on both the city's bonds and the agency's bonds is Stable.

The agency bonds are secured solely by a pledge of revenues from repayment of the city's water revenue bonds, series 2003 (2003 bonds), which will evidence the loan from the agency to the city. The agency will assign its right to receive repayment of the city's 2003 bonds to the trustee for benefit of the bondholders.

In addition to the underlying rating, Fitch expects to assign a long-term rating to the agency bonds based on a guarantee provided Ambac Assurance Corporation, whose insurer financial strength is rated 'AAA' by Fitch. The agency bonds are scheduled to sell the week of Aug. 18 via negotiations with George K. Baum & Company. The agency bonds mature and are subject to optional redemption prior to maturity as specified in the official statement. Proceeds of the agency bonds will be loaned to the city for costs associated with improvements to the city's water system (the system).

The downgrade on the city's water bonds reflects sooner than expected borrowing needs and lower debt service coverage than previously projected. Prior estimates indicated limited, if any, additional borrowings through fiscal 2005 along with projected coverage levels in excess of 3 times (x) during the same period. With the current and projected debt issuances, as well as the resulting forecasted coverage, the system's credit quality is more in line with that of 'A+' issuers.

Credit strengths include the system's still favorable financial operations, long-term water supply contract for potable water, and an economically strong service area.

Located 15 miles south of Salt Lake City, the city has experienced rapid growth over the last several years, which in turn has led to increased system capital costs to meet customer demands. With the current loan from the agency, system debt will increase substantially, requiring sizeable near-term rate increases and reducing coverage levels. However, financial performance is expected to remain sound and residential charges should continue to be competitive with those of other area systems.

The system primarily provides potable water service to city residents through its culinary system, but also provides irrigation water to a limited number of customers through its secondary system. Customer accounts for the culinary system total around 7,800, with growth averaging about 5% annually over the last five fiscal years. Culinary water is supplied by the Jordan Valley Water Conservancy District (JVWCD, water revenue bonds rated 'AA-' by Fitch Ratings), a regional wholesale provider, through a perpetual take-or-pay contract. City officials estimate JVWCD's supplies are sufficient to meet city needs through build-out, expected in around 20-25 years at 75,000-80,000 persons.

Financial performance has been good over the last five fiscal years with the system maintaining solid coverage and cash balances. For fiscal 2002, cash and investments equal to 169 days of operating expenditures and transfers outs. Likewise, working capital equaled 166 days of operating expenditures. Because of the relatively substantial amount of debt being issued with this transaction, coverage levels are expected to drop sharply from the 7.3x experienced in fiscal 2002; however, projections indicate adequate annual coverage of 1.4x on balance through fiscal 2010.

Proceeds from these bonds will be used to increase system storage capacity and expand lines to undeveloped areas. The city adopted a master plan for the culinary system in fiscal 2003, which forms the basis for projects to be funded from the current transaction as well as future projects. After the current transaction capital needs should be limited for the next several years and are expected to be funded from surplus system revenues. Beginning in fiscal 2010 through around 2015, though, the city expects additional debt totaling $25 million will be needed to meet growth-related capital needs. To fund the current issue the city enacted an $8 increase to the base monthly culinary water charge for fiscal 2004, and an additional $8 charge will be assessed in fiscal 2005. While the resulting base charge increases of 26% in fiscal 2004 and 21% in fiscal 2005 are substantial, rates overall should remain competitive with those of other regional providers.

The city is primarily a residential/suburban community, but has a growing commercial presence. Population growth has been dramatic over the last several decades, and from 1990 to 2000 the city expanded by 141%; the current population is estimated at 36,200. Despite the growth pressures, economic prospects for the city are favorable due to low unemployment rates, strong tax base growth, and above-average wealth levels. Historically the city's unemployment rate has remained well below that of the county, state, and nation, and for May 2003 was a minimal 3.8%. The city's tax base, which has benefited from the close proximity to Salt Lake City, nearly doubled between fiscals 1997-2002 with average annual growth of 13%. Wealth levels for the city, while approximating the national norm, are 4% higher than the county and 15% higher than the state.