Fitch Rates Ocala, Florida's $61MM Utility Revs 'A+' Und.

NEW YORK -- Fitch Ratings assigns an 'A+' underlying rating to Ocala, Florida's $61.1 million in utility system improvement and refunding revenue bonds, series 2004. Proceeds will advance refund all of the outstanding series 1995 and part of the outstanding series 2001 water and sewer system revenue bonds, as well as fund capital improvements to the city's electric, water and sewer system infrastructure.

The 2004 bonds are secured by a pledge of the net revenues of the electric, water, and sewer systems. In addition, Fitch affirms the 'AA-' rating on the city's outstanding senior lien water and sewer revenue bonds. Water and sewer revenue bonds that remain outstanding after this issuance will have a senior lien solely on the revenues of the water and sewer system. The bonds, expected to be insured, are scheduled to price on or around Dec. 14 via negotiation with a syndicate led by Morgan Stanley. The Rating Outlook is Stable.

The 'A+' rating reflects the combined utility pledge comprising 86% electric revenues and 14% water and sewer revenues. The rating also takes into account each system's historically solid financial performance with favorable self liquidity, a growing customer base, a reliable source of power from the Florida Municipal Power Agency's (FMPA; rated 'A+' by Fitch) All-Requirements Project (rated 'A+' by Fitch), and ample water and sewer treatment capacity. The electric utility has a favorable mix of customers with residential accounting for 41% of revenues and the balance coming mostly from commercial customers. The rating also recognizes management's efforts to work with the city in regard to economic growth initiatives. As part of their strategic plan, management has set aside funds to provide new large commercial customers with an economic development rate.

Pro forma financial performance (based on fiscal 2003 financial results) is strong, with debt service coverage of over 4.0 times (x), adjusted coverage of 1.5x, and cash on hand sufficient to cover approximately 150 days of operating expenses. In addition, the 'A+' rating takes into account the added bondholder protection from the subordinate water and sewer pledge, which provides some revenue diversity and a stable source of funds available for debt service.

Credit concerns include electric rates that are slightly above average for Florida public power systems and Fitch's belief that the water and sewer systems have a limited ability to raise rates given recent rate increases that have placed such rates slightly above regional averages. Furthermore, while the city has implemented a new electric system transfer policy (which is viewed favorably by Fitch), current transfer levels are above state and national averages.

The electric and water and sewer utilities are two separate enterprise funds of the city. Ocala, with a 2003 population of 47,921, is located in central Florida. The electric system, which accounts for the bulk of revenues (86% for fiscal 2003), serves approximately 47,080 residential and commercial customers. The electric utility's 171 square mile service territory includes the corporate limits of the City of Ocala and some unincorporated portions of Marion County. The electric utility receives the bulk of its power supply via FMPA's All-Requirements project. In addition, the city owns an 11.1 megawatt share (1.5% of plant capacity) in the Crystal River Nuclear Plant.