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Fitch Affirms Napa-Vallejo Waste Management Auth, CA Revs at 'A-'; Outlook Stable.

NEW YORK -- As part of its continuous surveillance effort, Fitch Ratings affirms the following Napa-Vallejo Waste Management Authority, California's (the authority) revenue bonds:

--$3.24 million outstanding revenue refunding bonds (solid waste transfer facility project), series 2004, at 'A-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the authority's solid waste enterprise system. Bonds are additionally secured by a cash funded debt service reserve fund.

KEY RATING DRIVERS

EFFECTIVE MANAGEMENT OF OPERATIONS: Although waste flow has declined due to the slowdown in the economy, management has made appropriate responses to operational changes and implemented rate increases to ensure sufficient cash flow to support operations and maintain reserves.

ADEQUATE DEBT SERVICE COVERAGE: Debt service coverage on the bonds from net revenues remains adequate at 1.70 times (x) and the authority does not have current plans for additional debt.

MANDATORY FLOW CONTROL: Municipal contracts provide for waste to be collected and brought to the authority transfer station for disposal in a private landfill under authority joint powers agreement.

EXPOSURE TO NON-CONTRACTED WASTE DISPOSAL: Customer self-haul of waste represents a manageable 31% of tonnage and revenues and volume of waste is dependent upon improved economic activity and competitive pricing.

FUTURE STABILITY IN OPERATIONS: The Stable Rating Outlook reflects successfully negotiated reductions in operating costs beginning in 2012 and board approved rate increases put in place on a forward annual basis.

CREDIT PROFILE

The authority was created in 1993 as a joint powers authority (JPA) to dispose of waste for the Cities of Vallejo and Napa as well as the unincorporated areas of Napa County. In 1998 the City of American Canyon joined the authority. Private franchise hauling contracts accounted for 69% of waste to the authority's transfer facility in fiscal 2010 with the remainder representing non-contract waste that is dependent upon the authority maintaining a competitive tipping fee (currently $65 per ton) and other advantages including high transportation costs to other disposal sites. Fiscal 2010 contract waste was derived 33% from Vallejo, 22% from Napa, 6% from American Canyon and 8% from the unincorporated areas of Napa County. The JPA prohibits member agencies from withdrawing from the JPA if there are any outstanding bonds. Member agencies are required to send all their municipal solid waste from their jurisdictions to the authority's transfer station.

The recession has significantly reduced waste tonnage with fiscal 2008, 2009 and 2010 tonnage levels down 16.8%, 6.5% and 9.7%, respectively. For fiscal 2011, the authority is reporting a modest 1.4% reduction in waste delivered to its transfer station. A corresponding reduction in operating expenses also occurred since the authority's major contract costs are based on volume. In order to ensure adequate future cash flows, the authority's board recently enacted $1.00 per ton rate increases. The new tipping fees increased to $65 per ton for non-member customers, effective July 2011, and to $61 per ton for member customers, effective October 2011. Under the terms of the board resolution, the rates will be increased $1.00 per ton each year going forward. The board last raised rates in 2009 by $2 per ton for both members and non-members. Fitch notes the system's economic vulnerability, with a meaningful portion of the waste flow (31%) reliant on construction activity and spot waste, as well as the correlation between lower throughput and reduced operating expenses.

While there are indications that the economy is strengthening, the authority continues to closely monitor incoming tonnages at its transfer station and is reviewing strategies for attracting additional waste to the facility. According to management, all landfills in the region are currently operating well under capacity due to a decline in the economy and are offering competitive rates to attract business. The authority contracted in 2007 for disposal of waste to the Keller Canyon Landfill and the contract included the option to renew for up to three five-year terms beyond the initial five-year term. The authority recently approved an 18-month extension of its contract to Dec. 31, 2013 to dispose of waste at the Keller Canyon Landfill and negotiated a reduction on disposal costs estimated to save the authority $600,000 per year beginning January 2012. The authority plans to seek competitive requests for proposals for disposal in an effort to further reduce disposal costs after 2013.

Although general waste disposal experienced a decline, fiscal 2011 operating revenues were only down marginally from fiscal 2010 levels totaling $11.4 million as higher recycling revenues and new lease rental income offset the lower general waste revenues. Operating expenses declined by 1.7%, providing net revenues of $2.1 million, up from $1.95 million in fiscal 2010. Coverage on fiscal 2011 debt service (which equals MADS) was healthy at 1.70x compared to 1.62x in fiscal 2010. Fiscal 2011 closed with $1.39 million in the rate stabilization fund, which is equivalent to a low 54 days cash on hand. Due to the annual rate increases and negotiated concessions in disposal costs, future debt service coverage should remain at or greater than current levels as debt service remains flat through 2014.

Legal covenants are satisfactory with a 1.25x rate covenant and additional bonds test (ABT). In addition to the standard debt service reserve fund, the authority maintains a rate stabilization fund equal to at least the succeeding year's debt service, which provides a financial cushion when the authority needs to adjust fees or operating expenses, and can provide temporary liquidity in the event of a bankruptcy of one of the private haulers. Authority revenues have not been impacted by the bankruptcy of the City of Vallejo since customer fees are collected and remitted by the private company providing collection service, not the city itself.

The authority originally operated both a transfer station and a landfill and in 1994 began closure of the landfill with waste rail hauled to a private landfill out of state. Since 1999, waste has been disposed in a nearby private regional landfill following the sale of the out of state landfill company. The authority received final landfill closure approval from the state of California in 2006 and completed the first year of its required 30-year post closure care period. The remaining estimated post closure costs are $14.1 million and will be paid over a 25 year post closure care period.

Napa County is located within 50 miles of the city of San Francisco and has a population of 136,000. Unemployment equaled 8.5% in September down from 9.2% a year prior and below the state's rate of 11.9%.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Ratings Guidelines for Solid Waste Revenue Bonds' (Aug. 9, 2011);

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'Revenue Supported Rating Criteria'(June 20, 2011).

Applicable Criteria and Related Research:

Rating Guidelines for Solid Waste Revenue Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648181

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
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Publication:Business Wire
Geographic Code:1U2NY
Date:Dec 7, 2011
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