Fitch Affirms 'BBB+' for Waterworks Dist. No. 1 of Calcasieu Parish, Louisiana.

AUSTIN, Texas -- Fitch Ratings has affirmed the 'BBB+' rating for the water revenue bonds of the Waterworks District No. 1 of Ward One of Calcasieu Parish, Louisiana (the district). This action affects $2.6 million of outstanding series 2002A and 2002B bonds. The Rating Outlook is Stable.

Fitch had identified the district on Sept. 26, 2005 as potentially susceptible to infrastructure impairment and disruption of normal operations as a result of Hurricane Rita.

The 'BBB+' rating reflects sound debt service coverage, sizable reserves, and a competitive rate structure. Also considered in the rating are moderate growth in the service area and manageable capital needs going forward. Relatively weak reserve fund requirements are mitigated to a degree by the amount of available reserves.

The district, which is located approximately 10 miles northeast of Lake Charles, benefited from its relatively high elevation during Hurricane Rita and experienced little flooding; damage in the service area reportedly was largely caused by downed trees. According to district officials, damage to district facilities from the hurricane was confined primarily to water line breaks resulting from uprooted trees.

The district restored power to its system within two days of the storm with generators, and service was restored after line breaks were repaired and the water quality was re-established. Officials estimate that roughly 90% of the district's customer base has returned since the storm. Lake Charles, which is the largest city in Calcasieu Parish and the region's commercial center, experienced more significant damage and is still under an emergency declaration. Although Lake Charles is not within the district's service area, Fitch will monitor the pace of economic recovery in the Lake Charles area to determine any long-term impact on the district's operations, its revenue stream, and overall financial health.

Prior to the storm, the district had experienced steady growth in its customer base of roughly 3% annually; its charges are characterized as competitive with other similar entities, providing some flexibility to raise rates if necessary. Annual debt service coverage has been no lower than approximately 3.0 times (x) over the past four fiscal years, and little change in coverage is anticipated over the near term. Debt is retired rapidly, with all outstanding bonds repaid by 2012. The district reports no borrowing plans for the next several years, with capital projects to be financed with available funds and other sources.

The district serves a bedroom community and has approximately 6,750 accounts, more than 90% of which are residential. Facilities include five wells, two treatment and production plants, and five storage tanks. Water supply is not an issue as pumping rarely requires over one-third of available resources.

Liquidity is substantial, which provides an important cushion due to an interruption in billing following the storm. District officials report that they were unable to bill for September service and only now are sending out bills for both September and October usage. Cash and investments, including construction reserves available for reimbursement to the operating fund, total more than $1 million, or nearly two years of operating expenses.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.