Fitch Rates Port St. Lucie, FL $29MM Utility Sys Rev Bonds 'A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 22, 2004

Fitch Ratings assigns an 'A' rating to the Port St. Lucie, FL's $29,015,000 utility system revenue bonds, series 2004. The bonds are scheduled to sell through negotiation with RBC Dain Rauscher Inc. on or about April 28 and mature Sept. 1, 2008-2033. Fitch affirms the 'A' rating on approximately $245 million in outstanding parity utility revenue bonds. The Rating Outlook is Stable.

The 'A' rating reflects Port St. Lucie's substantial progress in expanding the customer base and infrastructure of its water and wastewater utility, strong liquidity, and strengthening financial operations albeit continuing reliance on capacity and similar fees paid by new customers. The rating also incorporates the system's high cost structure and weak legal protection for bondholders. Significant capital needs related to utility expansion will remain as residential population growth continues to be rapid and the percentage of residents served by the system remains low. In addition, a recent swap option, if exercised by the counterparty, would apply to 43% of the system debt, a large proportion, with potential credit risks inherent to such instruments.

Located on the Atlantic coast, Port St. Lucie is primarily a residential community. The city has undertaken an ambitious effort to expand service to its largely undeveloped areas utilizing special assessments on improved properties and connection fees. The increased availability of water and sewer service has been a driving force behind the city's continued explosive population growth. Utility system water customers have grown at a very rapid annual average rate of 15% for the past five years to 49,296 equivalent residential connections (ERCs) and wastewater customers have grown at 14% to 28,768 ERCs.

Faster customer growth than projected has necessitated hiring more teams to connect customers and expanding two wastewater treatment plants (WWTP), North Port and Southport, that will be decommissioned after a new Glades WWTP is built. However, sufficient capacity exists for both the water and wastewater systems to handle demand. Bond proceeds will fund an expansion of the new LTC RC water treatment plant, scheduled to be completed this November, construction of the new Glades WWTP, the expansion of Southport WWTP and a connecting pipeline between the Southport and Westport WWTPs.

Financial operations, especially cash position, have shown improvement over the last several years and have resulted in satisfactory debt service coverage. A sizable amount of the city's income, some years reaching 50%, is comprised of various connection fees. Annual fluctuations in these revenue sources are partially mitigated by the city's policy to allow established residents to finance connection fees over a 10-year period. Based on un-audited fiscal 2003 results, net revenue coverage of debt service increased to 1.24 times (x) from 1.08x in fiscal 2002; including a reserve of applicable capital facility charges, coverage increases to 2.13x from 1.78x. Cash on hand would cover operating expenses and debt service a strong 489 days at the end of fiscal 2003.

The swap option, if exercised by JP Morgan Chase Bank (rated 'A+/F1', Rating Watch Positive by Fitch) between 2007 and 2009, would apply to a large portion of the city's debt. While risks related to this instrument are mitigated by a sound structure, ample system liquidity, and an insurance agreement with an 'AAA' rated guarantor, certain risks remain in any swap, including the possibility of counterparty downgrades, interest rate changes and termination payments however unlikely. Swapping larger portions of debt in the future could prove to be a credit concern.