Fitch Rates Lee County, FL Solid Waste Revs 'A-'; Outlook to Positive.

NEW YORK -- Fitch Ratings has assigned an 'A-' rating to Lee County, Florida's approximately $65 million solid waste system revenue bonds series 2006A and approximately $22 million solid waste system refunding revenue bonds series 2006B. Scheduled for negotiated sale on April 18, the bonds are expected to be insured by an 'AAA' rated bond insurer. Proceeds from series 2006A bonds will fund the addition of a third municipal waste combustor unit to the county's resource recovery facility and other related infrastructure. Proceeds from series 2006B bonds will refund on a current basis outstanding solid waste system revenue bonds series 1995 maturing on or after 1 October 2006. The Rating Outlook is revised to Positive from Stable.

The 'A-' rating and Outlook revision to Positive reflect the system's improved financial performance and well-established operating history. Legislative and economic flow control of waste result from the competitive rate structure and agreements with both municipalities and franchise haulers that commit waste to the county-owned system. Close to half of system revenues are collected on property tax bills, with a lien on property in the event of nonpayment, thus providing a degree of revenue security. Additional credit strength stems from the system's sizable cash and investments, satisfactory debt service coverage levels, manageable capital needs, and the growing, diverse service area economy.

These factors help mitigate the liberal legal provisions with sum sufficient debt service coverage requirement, and renewal risks associated with the interlocal agreements, franchise agreements and electric power purchase agreement. The Positive Outlook indicates that the timely completion of the expansion project expected in July 2007, coupled with the continuation of the strong financial operations and management upon full operation of the expanded facility, may result in positive rating action.

The bonds are payable from net system revenues, which are fairly diverse. Close to 90% of system revenues are derived from various interlocal and franchise agreements and the electric power purchase agreement, all of which are subject to periodic renewals prior to final maturity of the bonds. However, Fitch believes that the renewal risk and any potential interruption in revenues are somewhat mitigated by the system's sizable cash and investments position. Moreover, the demonstrated operating history and contractual relationship with franchise haulers, as well as the inherent logistical and economic incentives for incorporated municipalities to continue to direct waste to the system, help provide a degree of stability.

The fully integrated solid waste system operates as a division of Lee County. The system serves all of Lee County and, as per interlocal ordinance, all waste generated in neighboring Hendry County. The system has consistently generated operating surpluses since the mid 1990s, and preliminary results indicate another operating surplus for fiscal 2005. Net revenues as defined by the indenture covered annual debt service requirements by a satisfactory 1.60-1.69 times (X) from fiscal years 2000-2004, and are estimated at 1.63x for fiscal 2005. Upon issuance of the series 2006 bonds, debt service coverage levels are projected to reduce slightly but still remain satisfactory at 1.40x-1.76x of annual debt service, well above the sum sufficient requirement. Coverage levels of maximum annual debt service (MADS) are also adequate: net revenues based on preliminary results for fiscal 2005 covered MADS by 1.40X.

Located on the Gulf Coast of Florida and encompassing approximately 811 square miles, Lee County includes the incorporated municipalities of Fort Myers, Cape Coral, Bonita Springs, Fort Myers Beach and Sanibel. The county's population increased more than 30% during the 1990s and reached an estimated 537,180 in 2005, representing a robust 21.8% growth since the 2000 census. The county's economy is diversifying somewhat away from its traditional tourism and retirement-related industries. Downtown Fort Myers remains the business and financial center for southwestern Florida, and the county is home to both Southwest Florida International Airport and Florida Gulf Coast University. The county's unemployment rate compares favorably to those of the state and the nation, and income levels are on par with those of the state and the nation.

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