Fitch Rates New Orleans $20.3MM Sewerage Revs `A-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 29, 2000

Approximately $20,300,000 City of New Orleans sewerage service revenue bonds, series 2000B, are rated 'A-' by Fitch. The bonds, maturing June 1, 2001-2020, are expected to be sold on Oct. 4, via competitive bids to New Orleans' Board of Liquidation and are scheduled to be received until 10 a.m., (CDT). Fitch affirms the 'A-' rating on $78 million in outstanding sewerage service revenues bonds.

The 'A-' rating on the New Orleans Sewerage and Water Board's sewerage service revenue bonds reflects the city's stable service area, its strong financial performance strengthened by above-average legal covenants with bondholders, and the considerable requirements to comply with a consent order following a 1998 judicial settlement with the U.S. Environmental Protection Agency (EPA). Massive improvements throughout the century-old system are required to reduce pollutant flows from an aging infrastructure network into sensitive fresh water, wetland and estuarial environments, including Lake Ponchartrain and the Mississippi River.

Cost for the mandatory consent decree program are forecast at $455 million for the estimated 13-year effort, which is equal to 159% of 1999 system plant value. To date, compliance has been excellent. Financial performance has been strengthened by cost controls, including an 18% reduction in staff, and will be further bolstered by a 30% rate increase implemented in March 2000. Smaller though still significant rate increases, additional expenditure savings through managed competition, or both will be needed in the next several years. The board is in the process of soliciting bids for contractors to run all of a portion of each of its three business units (sewerage, water and drainage).

In the near term, annual debt service coverage is projected to remain above 2.0 times (x) annually assuming a 12% rate increase each year through 2004 but no savings from operational efficiencies. Rate and additional bonds covenants are of above-average strength, compared with those of similar systems nationally.

Fitch also rates the board's outstanding water revenue bonds 'A-'. Water capital needs currently are not as urgent as those of the court-supervised sewerage system. However, while water system finances also remain superb, a future renovation effort is probable.

While overall water and sewer rates remain affordable, they are creeping above medians and averages for systems of comparable size. Income levels are below average, causing some concern about the affordability of possible rate increases. Employment levels in the area's oil and gas industries continue their historical volatility, although there are signs that long-term declines in city population are stabilizing. Tourism has been particularly strong, with the expansion of the local gaming industry.

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 more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for financial institutions, insurance, corporates, structured finance, sovereigns and public finance markets worldwide.