Fitch Rates Baltimore, MD Wtr & Wastewtr Bonds `A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 9, 2000

Fitch, the international rating agency, assigns its `A+' ratings to Baltimore, MD's $37,770,000 project and refunding revenue bonds (water projects), series 2000-A, and $24,350,000 project and refunding revenue bonds (wastewater projects), series 2000- A. The unenhanced `A+' ratings on Baltimore's $299 million outstanding separately secured water and wastewater revenue bonds are also affirmed. The 2000-A bonds are expected to sell on a negotiated basis through a syndicate led by PaineWebber, Inc., on or about June 13.

The near-term rating outlook is stable. Capital demands are rising due to needed upgrades at Baltimore's water and wastewater treatment plants. Financial projections that the city will continue its record of maintaining stable, small operating margins over the next five years appear reasonable based on substantial recent rate increases for both the water and wastewater utilities. Past consent decree compliance has been good, and sanitary sewer overflow incidents are reportedly few for a utility this size. Improving maintenance efforts are apparent from the capital improvement program (CIP) and engineer evaluations. Budgeting shows the prudent conservatism typical of Baltimore operations.

As Baltimore has lost population, the suburban customer base, receiving services generally at cost and providing about half of the utilities' revenues, has helped keep system performance steady, allowing efficient operating scale and below-average rates within the city to be maintained even though suburban revenues are generally not pledged to bondholders. The revenue stability provided by suburban customers is particularly important, given the somewhat liberal security structure that ensures only small operating margins, has preserve moderate financial reserves compared to capital needs, and allows use of cash balances for rate covenant purposes.

Increases in the 2000-2005 CIP will help prepare water treatment plant filtration capacities for future regulations and the Patapsco Wastewater Treatment Plant for possible stricter limits on nitrogen and phosphorous effluent, as envisioned by the interstate Chesapeake Bay Agreement. However, if Maryland's total maximum daily limit regulations for impaired waterways eventually require significantly greater capital upgrades at the plant, greater pressure could be exerted on the fragile ratepayer base of Baltimore. The city's economy, despite fierce local and state development efforts, has been stagnant for a long period. Keeping the system's small, but steady, financial flexibility could be difficult if major CIP-related rate increases are required atop those already enacted and forecasted in the 2000-2005 plan.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in over 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Banks, Corporations, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.