Fitch Affirms Fulton County, Georgia's $561MM Water/Wastewater Revs 'A+'; Outlook Stable.

NEW YORK -- As part of its ongoing surveillance efforts, Fitch Ratings affirms its rating on Fulton County, GA's (the county) approximately $560.6 million outstanding water and wastewater revenue bonds. The bonds are secured by net revenues of the city's utility system (the system). The Rating Outlook is Stable.

The 'A+' rating is based on the system's strong financial operations demonstrated by historically solid debt service coverage levels and notably high cash reserves, a moderate debt profile with no long-term borrowing plans in the near future, and the added flexibility provided by a currently affordable rate structure coupled with above-average resident wealth levels. The rating also considers the system's lack of a comprehensive multi-year capital improvement plan. While the Rating Outlook is presently Stable, Fitch remains concerned regarding a recent court decision that could potentially affect the county's current water supply from the Chattahoochee River. Having to alter the current source of water withdrawal could require a significant amount of capital investment from the county, although the ruling gives the county, as well as other interested parties, three years to resolve the matter. As such, Fitch will closely monitor the county's progress in addressing the court ruling and continue to evaluate the impact on the system's and the county's overall credit profile.

The county utility system provides water and sewer services to about 70,000 customers in the northern part of the county and wastewater service to an additional 42,000 customers in the southern section. Those customers receive water service directly from the city of Atlanta. Water supply for both the city and county systems comes from the Chattahoochee River with the county's water supply treated at the Atlanta Fulton County Water Treatment Plant, which is jointly owned and operated by the county and Atlanta. The plant is permitted to be expanded sufficiently to provide water through 2030. The county operates six wastewater treatment plants, including one that provides tertiary treatment for reuse. Favorably, treatment capacity is well in excess of average daily flows, and past permit violations based on both water quality and flow levels have been resolved with all plants currently operating well within permitted levels. The system's stable service area includes areas of the county outside of Atlanta and benefits from well above resident income levels.

Despite some weakening in fiscal 2008, the system's financial profile remains healthy. State-imposed water use restrictions in place through fiscal 2008 prompted a 17% decline in total operating revenue, despite a mid-year 15% rate hike. As a result, debt service coverage fell to 1.4 times (x) in fiscal 2008 compared to historically higher coverage levels of at least 2.0x. While rates were left unchanged for fiscal 2009, officials expect annual debt service coverage to rise as water use restrictions have since been lifted. Liquidity remains a credit strength for the system; unrestricted cash and investment at the close of fiscal 2008 equaled more than 750 days of cash on hand. The system does not produce multi-year financial projections, and future rate increases have not been disclosed. While a comprehensive, multi-year CIP is also not available, officials maintain that a long-term plan is currently being developed and estimate the system's capital needs to be about $180 million over the next five years. Capital financing is anticipated to come from current reserves and cash balances.

Additional information is available at 'www.fitchratings.com'.

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