Fitch Affirms Melbourne, FL's Water/Sewer Revenue Bonds at 'A+'.

NEW YORK -- In the course of routine surveillance, Fitch Ratings affirms Melbourne, Florida's (the city) approximately $112.6 million in water/sewer revenue bonds at 'A+'. The Rating Outlook is Stable.

The 'A+' rating reflects the adequate debt service coverage provided by pledged revenues as well as the system's sound liquidity levels, sufficient treatment capacity, and below- average legal provisions. The rating also incorporates the system's capital needs which, after increasing significantly earlier this decade, have decreased to a more moderate level. The Stable Outlook reflects Fitch's expectation that debt service coverage will remain adequate for the rating category despite the pressured operating environment.

Melbourne is located in southern Brevard County on the Atlantic coast. Employment is centered on military and aerospace activity, as the county is home to Cape Canaveral, the Kennedy Space Center, and Patrick Air Force Base. Agriculture is also an important part of the economy. Unemployment rates have increased significantly with the current economic downturn to 9.9% for August 2009 from 6.6% a year prior. Wealth levels remain low.

Coverage levels historically have been ample with coverage remaining over 1.95 times (x). As previously projected by the city, estimated coverage for fiscal 2009 decreased to a still adequate 1.2x. The city is currently conducting a rate and efficiency study in order to maintain adequate debt service coverage for fiscal 2010. Liquidity remains strong at over 200 days for fiscal 2008 but may decline over the next few years as the system uses cash to fund capital and other needs.

The system provides water service to roughly 150,000 people on a retail basis in and around the city, and wholesale service to the city of West Melbourne. Raw water from Lake Washington and three lower-Florida aquifer production wells provides ample supply, and the system has sufficient treatment capacity. The sewer system serves about 70,000 people, almost all within the city limits. The system's two wastewater treatment plants currently provide adequate capacity for secondary treatment.

The system's $43 million five-year capital improvement plan (CIP) is approximately 1/3 the size of the system's fiscal 2007-2011 plan. The decrease is a result of the city completing sizeable capital projects on the system's reclaimed water system as well as cancelling planned growth related projects which are no longer needed in the near term. Additional debt plans are limited to $9.4 million in parity debt in fiscal 2013 and $14 million in state revolving fund (SRF) loans over the next five years.

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

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