Fitch Rates Mansfield, Texas $6MM Water and Sewer Revs 'AA-'.

NEW YORK -- Fitch assigns its 'AA-' rating to the City of Mansfield, Texas' (the city) $6 million waterworks and sewer system revenue bonds, series 2007. Additionally, the 'AA-' rating is affirmed for the city's $30.8 million waterworks and sewer system revenue bonds outstanding. The bonds are scheduled to sell as early as Dec. 11 via a negotiated sale managed by Southwest Securities. The Rating Outlook is Stable.

The bonds are payable from and secured by a first lien on the pledged revenues, which include net revenues of the city's waterworks and sewer system (the system) and other resources, which may be pledged to the payment of the bonds. Bond proceeds will be used for construction of improvements to the system and to pay issuance costs.

The 'AA-' rating reflects a positive operating performance record, solid reserves, and conservative budgeting and planning practices. The rating also incorporates sizable, albeit manageable, capital needs and weaker-than-average rate covenants. Gains in population and customer count, as well as anticipated future growth, are requiring additional capital spending to increase treatment capacity and storage and expand water distribution and wastewater collections facilities. The city anticipates no need for rate hikes in the near future to accommodate additional debt due largely to the plan for growth to 'pay for itself' through impact fee revenues from new system customers. Impact fees have emerged as an important system revenue source, representing about 32% of operating revenues in fiscal 2005. Fitch believes heavy reliance on this economically sensitive fee generates a certain degree of risk, which is partially mitigated by sufficient debt service coverage even after excluding impact fee revenues.

Financial operations are characterized by positive operating margins and generally healthy cash positions. Cash and investments at the end of fiscal 2005 totaled over $4 million, the equivalent of nearly 200 days of expenditures. Debt service coverage comfortably exceeds legal requirements; fiscal 2005 net revenues provided annual debt service coverage of about 2.5 times (x), similar to coverage levels over the previous several fiscal years. Excluding impact fees, debt service coverage was at 1.5x. Unaudited coverage levels for fiscal 2006 declined somewhat but remained good at 2x with impact fees included and an adequate 1x excluding impact revenues. While projected operating results show a decline in debt service coverage in future years to about 1.8x by fiscal 2010, coverage levels comfortably exceed the city's formal 1.3x coverage policy and the 1.1x rate covenant requirement. Furthermore, actual operating results have typically outperformed the budget and past projections.

The city's long-term capital improvement plan (CIP) for fiscals 2007-2016 totals $161 million and will be funded primarily with bond proceeds (73%) as well as impact fees charged to new customers. The current CIP is noticeably larger than prior plans due mainly to the expected issuance of nearly $33 million in debt in fiscal 2016 for a new water treatment plant. However, the city maintains some flexibility in project scheduling if growth slows from its current rapid pace. Also, a portion of the funding for the water treatment plant may be available from tax increment revenues, reducing the impact to system revenues. Currently, debt levels are slightly above average but should fall relative to other similarly rated credits over the next five years despite additional issuances. This is due in large part to the rapid amortization of system debt, with 65% of all principal retiring in 10 years.

Located south of Arlington, Mansfield (general obligation bonds rated 'AA-' by Fitch) lies in southeastern Tarrant County. The city's estimated 2006 population of over 54,000 represents an increase of more than 80% from the 2000 census, and city officials anticipate that its population will reach 70,000 in 2010. The city's rapidly growing economy is marked by continuing expansion of its large industrial base, new growth in its retail sector, and substantial residential construction. Taxable assessed valuation growth has averaged more than 15% annually since fiscal 2001. Customer count is another indicator of growth; both water and wastewater customer totals have expanded by an average of about 9%-11% annually for the past six years. Only about 50% built out, the city annually updates a ten year strategic growth plan to facilitate future infrastructure needs with minimal tax impact. The city obtains raw water from the Tarrant Regional Water District, and wastewater treatment is provided by the Trinity River Authority.

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