Fitch U.S. Muni Surveillance: Pine Bluff, AR's Wastewater Utility System Revs Affirmed at 'A'.

AUSTIN, Texas -- In the course of routine surveillance, Fitch Ratings affirms at 'A' Pine Bluff, Arkansas' (the city) $5 million of outstanding senior lien sewer revenue bonds consisting of:

--$465,000, series 2002;

--$4.5 million, series 2003.

The bonds are payable from a senior lien on and pledge of the net revenues of the city's wastewater utility system (the system). The Rating Outlook is Stable.

The 'A' rating reflects the system's good financial performance in terms of debt service coverage and liquidity, very rapid principal amortization, low leverage ratios, and competitive rates. Financial performance is expected to remain adequate given the modest capital pressures and proposed rate hikes. Offsetting risks include concentration in its customer base due to several large industrial users.

In fiscal 2007, the system served approximately 17,000 customers. The city operates one wastewater treatment plant which serves five separate districts and one housing project. The city's only plant, the Boyd Point Wastewater Treatment Plant, was built in 1968 and recently expanded in 2005 to accommodate 18 million gallons per day in capacity. The system uses biological treatment with aeration ponds and is one of the largest of this type in the nation.

The city's sewer customer accounts are primarily residential (nearly 90%), though this category comprised only about 37% of operating revenues in fiscal 2007, followed by industrial users at 30% and commercial at 14%. The city's top three sewer customers account for a high of approximately 18% of operating revenues in fiscal 2007, led by Tyson Foods, Inc.'s (senior unsecured notes rated 'BB' by Fitch with a Stable Outlook) chicken processing plant. Other large industrial users include Arcelor-Pine Bluff, Inc., a steel belt manufacturer, and Central Moloney,Inc., a manufacturer of transformers and electronic components.

The financial performance of the city's sewer system has been good. Senior annual debt service coverage (ADS) was 1.9 times (x) in fiscal 2007. Projected debt service coverage is expected to produce similar results, with coverage levels significantly improving beyond fiscal 2009 due to the full retirement of the system's series 2002 bonds. Liquidity for fiscal 2007 was also healthy at 179 days cash on hand. Days working capital was similar, averaging 261 days over the past five years. Given that approximately 48% of the capital improvement plan (CIP) will be funded with cash, liquidity may continue to decline, but should rebound when rate hikes are enacted in fiscal 2010.

An $800 thousand emergency fund is part of the city's cash reserves, to be used for repair and replacement in the event of catastrophic emergencies. As a closed loop system, no transfers to the general fund are made, including for indirect costs as the sewer system is a semi-autonomous system needing city council approval only for rate increases and debt issuance. Based on the current rate structure, the average monthly bill equals 0.8% of the city's median household income, which is within Fitch's affordability threshold.

The city's fiscal 2009-2013 CIP totals a modest $4.4 million. Approximately 52% is forecasted to be debt-funded with the remainder to be funded with cash. The system's capital plan is devoted to rehabilitation of its infrastructure which includes line improvements and pump station upgrades. Leverage ratios compare very favorably with comparable ratings, with total outstanding long-term debt per customer at $399 for fiscal 2007 versus the 'A' category median of $1,875. Projected debt per customer over the next five years is also expected to remain below the 'A' medians. Its very rapid principal pay out rate of 100% in ten years is also a credit positive.

Pine Bluff is the county seat of Jefferson County, located in the delta region of Arkansas. The city's 2008 population of about 51,000 declined modestly (10.6%) from its 1990 census count as residents have migrated to unincorporated regions of the county. Despite the modest contraction in its residential customer base, the city's industrial accounts have remained steady. The City of White Hall, a suburb of Pine Bluff, is experiencing residential growth, benefiting the city through its long-term contract to treat its sewage as a wholesale customer.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.