Fitch Rts Napa-Vallejo Waste Management Auth, CA Revs 'A-'.
AUSTIN, Texas--(BUSINESS WIRE)--May 21, 2004
Fitch Ratings assigns an 'A-' rating to the Napa-Vallejo Waste Management Authority, California's (the authority) $9.84 million 2004 revenue refunding bonds, (solid waste transfer facility project). The 2004 bonds tentatively are scheduled to sell the week of June 7. The sale method has not been determined. The 2004 bonds mature serially on Feb. 15, 2005-2014, and redemption provisions are specified in the prospectus.
The 2004 bonds are special obligations of the authority, payable from net revenues derived from the operation of a solid waste transfer facility located in Napa County, California (the facility). Bond proceeds will be used to refund the outstanding 1994 revenue bonds for debt service savings, and pay costs of issuance. The Rating Outlook is Stable.
The 'A-' rating reflects the authority's substantial cash reserves, reduced landfill closure liability, minimal capital needs, and increasing tonnage amounts processed at the facility. Also incorporated into the rating is a string of operating losses over the past several years as the authority has attempted to reduce large cash reserve amounts. Provision for a supplemental reserve, as well as existing reserves, should limit the potential for interruption of revenues in case of a bankruptcy filing by a private disposal company. While rate and bond covenants have been weakened in the new indenture, they remain sufficient and also afford an opportunity for the authority to enhance the competitive position of its facilities.
Moderate operating losses have occurred in four of the past five fiscal years. Authority officials report that these losses were planned to reduce sizeable operating reserves. For fiscal 2003, the $7.8 million reported in net income resulted from a $9.6 million adjustment in estimated landfill closure and post-closure costs; otherwise the authority would have posted a net loss of $1.8 million. Unrestricted cash and investments totaled $3.5 million in fiscal 2003, down from $7.0 million the prior year.
Authority operations occur at a solid waste transfer facility that serves four area governments and individual haulers. Trash that is collected at the transfer facility is transported by truck to a landfill located in nearby Contra Costa County. Operation and maintenance of the transfer facility is performed by Allied Waste, Inc., a private disposal company. The authority also owns a landfill that became inactive in 1995. Final closure operations of the landfill are expected to be completed in 2005, at which time more than $4.5 million in restricted trust funds will be available for other purposes. Fitch believes that these additional funds should enable the authority to remain competitive with other area disposal facilities.
The primary contractual customers of the transfer facility are Napa County, and the cities of Napa, Vallejo and American Canyon. These customers combined accounted for roughly 60% of total waste volume in fiscal 2003, down from 75% in fiscal 1996. The remaining volume comes from the spot waste market, which increased from 25% of total tonnage eight years ago to more than 40% today. Authority officials cite the competitive tipping fee of $54 per ton and high transportation costs to other disposal sites as the primary reasons for the growing 'self haul' volume. Overall, tonnage processed at the facility has increased more than 8% annually since fiscal 1999, including a 16% jump in fiscal 2003.
The primary credit concern is the potential for interruption of revenue streams to the authority if a private disposal company files for bankruptcy protection. With the exception of the City of Napa, private companies collect customer payments on behalf of the contractual customers and remit them to the authority. A supplemental reserve, to be funded when annual budget reviews project that existing reserves will fall below 1.0x MADS, largely mitigates this concern. The proposed rate and bond covenants for the 2004 bonds have been weakened from the 1994 bond covenants but remain adequate. Both the rate covenant and the additional bonds test require 1.15x coverage, below the 1.25x coverage required previously.
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|Date:||May 21, 2004|
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