Fitch Rates Grand Prairie, Texas $6.6MM Water and Wastewater Revs.

AUSTIN, Texas -- Fitch Ratings assigns an 'AA' rating to Grand Prairie, Texas' $6.625 million water and wastewater system revenue bonds, new series 2006-A. The bonds are scheduled to sell on a competitive basis on Sept. 18, 2006. Fitch also affirms the 'AA' rating on the city's $41.9 million of outstanding parity bonds and $8.6 million of outstanding senior lien bonds. The Rating Outlook is Stable.

The 'AA' rating reflects the City of Grand Prairie's sound policies, which have provided solid financial performance and healthy liquidity levels. Capital costs are manageable, and coverage levels are expected to remain strong. Rates will increase moderately over the near term but should remain competitive. The service area has neared complete recovery from the most recent national recession, benefiting from its central location in the Dallas-Fort Worth region.

The water system serves approximately 57,500 customers, and approximately 91% of all treated water is supplied by the Dallas Water Utilities (DWU) under a contract extending through 2012. Roughly 3% of the city's water supply is provided through a contract with Fort Worth that expires in 2010, and the balance is derived from city wells. For future water supply the city has the option to renew its contracts with DWU and Fort Worth and has secured an additional source through a contract with the Trinity River Authority (TRA) and the cities of Cedar Hill and Duncanville to finance the construction of a water intake facility at the Joe Pool Lake. The TRA provides financing, management, and operation and the cities reimburse their proportionate share for total costs. The wastewater system serves approximately 57,000 customers, with treatment provided by the TRA under a contract that extends to 2023.

Coverage levels remain well above average, reflecting the city's lack of direct debt related to treatment facilities and source water supply. The city is experiencing significant residential growth especially in the southern region near the lake, resulting in large capital contributions provided by a number of developers and for fiscal 2005, annual debt service (ADS) coverage jumped to 4.7 times (x). ADS coverage is projected at around 2.3x-2.4x through fiscal 2011, although the city employs conservative modeling assumptions and actual performance has tended to be more favorable. Liquidity remains strong and in line with the 'AA' category. Fiscal 2005 liquidity was sizeable at around 530 days of unrestricted cash and investments.

The city's fiscal years 2008-2011 capital improvement program (CIP) totals almost $46 million, up about 60% from a few years ago as a result of elevated projected density populations in the southern sector of the city. Funding for the CIP is expected to come predominantly from future debt issuances, although the city plans to continue its practice of providing a substantial amount of pay-as-you-go funding. Utility rates are lower than the regional average and should remain competitive. Debt amortization is above average for a utility system, with 56% of principal maturing in 10 years.

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