Fitch Rates Washington Suburban Sanitary District, Maryland $82.2MM Rfdg Bonds 'AAA'.

NEW YORK -- Fitch Ratings assigns 'AAA' ratings to the Washington Suburban Sanitary District, Maryland's (the district) approximately $82.2 million issue as follows:

--$31.3 million water supply refunding bonds of 2006;

--$9.8 million sewage disposal refunding bonds of 2006;

--$41.1 million general construction refunding bonds of 2006.

The bonds are ultimately secured by an unlimited ad valorem tax pledge of all taxable property within the district, encompassing most of Montgomery and Prince George's Counties, Maryland. Public Advisory Consultants, Inc. of Owings Mills, MD serves as financial advisor to the Washington Suburban Sanitary Commission (WSSC) which oversees operations of the district. The offering is scheduled for bids on Oct. 17, and the bonds will mature serially on June 1 2007-2025. Additionally, Fitch affirms the 'AAA' rating on the district's $1.3 billion in outstanding bonds. The Rating Outlook is Stable.

The 'AAA' rating primarily reflects the wealth and extraordinary diversity of the district's two-county tax base, Montgomery and Prince George's counties (general obligations rated 'AAA' and 'AA+' by Fitch, respectively). While WSSC does not currently nor intends to utilize this taxing power, WSSC could levy unlimited ad valorem taxes to cover bond debt service, if necessary. WSSC's multiyear fiscal plan envisions ongoing, aggressive efficiency efforts but Fitch expects financial flexibility to be maintained because of the water and wastewater utility's unused GO taxing power, affordable rates relative to local income levels, gradual reductions in debt levels, and prudence in increasing its operating reserve to offset revenue variations.

The district's financial flexibility is strong due to decades of conservative budgeting practices, healthy financial reserve policies, and multiyear forecasting of both operating and capital needs. System maintenance efforts have long been strong, according to industry experts, and as a result, capital needs are now moderate, compared with peer utilities regionally and nationally. Despite its ability to levy ad valorem taxes in the member jurisdictions, WSSC covers district debt service from a diverse array of revenue sources: front-foot assessments on properties benefiting from water and sewer system improvements in addition to water and sewer service charges. Financial operations remain positive and liquidity levels are healthy.

The WSSC increased water and sewer consumption charges by 2.5% for fiscal 2006, following a 3% increase in fiscal 2005, which had been the first increase in six consecutive fiscal years. The fiscal 2007 budget includes another 3% increase to cover increasing energy costs, enhanced sewer maintenance and rehabilitation programs, and capital expenditures. It is anticipated that rate increases greater than 3% will be necessary to fund extensive system rehabilitation projects.

Given the district's history of rapid debt retirement and manageable future capital needs, Fitch believes that debt will continue to decline in the long term. System leverage, as measured by the ratio of debt-to-net-plant, has declined from 70% around the time of its late-1980s program to expand capacity and improve environmental compliance to less than 30% at the end of fiscal 2006. Debt retirement is extremely rapid for a water and wastewater utility. In fact, the amortization rate is quite rapid even when compared with the typical practices of general purpose local governments. Approximately 80% of current outstanding debt is slated to be paid off within the next ten years. The proposed $868.9 million 2008-2013 capital improvement plan (CIP) is up 15% from the prior plan due to an increasing emphasis on system rehabilitation projects and costs related to a long term infrastructure analysis. Approximately 55% of the proposed CIP will be debt funded.

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