Fitch U.S. Muni Surveillance: Salisbury, NC's Combined Enterprise Revs Affirmed at 'A+'.

AUSTIN, Texas -- In the course of routine surveillance, Fitch Ratings affirms the 'A+' rating on Salisbury, North Carolina's (the city) $18.5 million of outstanding senior lien revenue bonds consisting of:

--$1.3 million combined enterprise system revenue bonds, series 1998A;

--$17.2 million combined enterprise system revenue bonds, series 2002.

While the original rating for the combined enterprise system revenue bonds series 1998A was assigned April 10, 2002, the rating was not reflected on Fitch's web site. With this affirmation the full rating history is now available on the website.

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

The 'A+' rating reflects the system's strong financial performance in terms of debt service and liquidity, healthy leverage ratios even with projected debt issuances, ample water supply and diverse service area. Financial performance is expected to remain strong given the moderate capital pressures and estimated rate increases. Credit concerns include rate affordability driven by rising capital and operating costs, although capital plans in the medium term appear manageable.

In fiscal 2008, the city served approximately 45,000 water and 42,000 sewer customers. The city operates one water treatment plant with a treatment capacity of 24 million gallons per day and provides service to eight municipalities in Rowan County. The Yadkin River provides the city with an abundant supply of water. The city's three wastewater treatment facilities serve as the area's regional wastewater utility and provide service to seven municipalities in the county. Over the past few years, the city has annexed several areas as it focuses on becoming a regional provider of water and sewer service. Part of the city's capital plan is dedicated to extending water and sewer lines to these areas.

Financial performance has been strong. Senior annual debt service coverage (ADS) was 3.8 times (x) in fiscal 2008. Projected debt service coverage is expected to produce good results as well. Liquidity for fiscal 2008 was also solid, with 522 days cash on hand, above the 'A' category median. Days working capital was equally strong at 591 days in fiscal 2008. Given that approximately 14% of the capital improvement plan (CIP) will be cash funded, liquidity should remain above average. Based on the current rate structure, the system's average monthly bill equals 2.0% of the city's median household income, which is right at Fitch's affordability threshold.

The city's fiscal 2009-2013 CIP totals a moderate $47 million. Approximately 86% is forecasted to be debt-funded. Leverage ratios compare favorably with comparable ratings, with total outstanding long-term debt per customer at $1,198 for fiscal 2008 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, despite proposed issuance plans. Amortization is above average for the sector with principal payout at 58% and 100% in 10 and 20 years, respectively.

Salisbury, the seat of Rowan County, is located halfway between Charlotte and Greensboro on Interstate 85. Population growth has averaged approximately 1.2% annually over the last five years. The vast majority of customers are predominantly residential in nature. Per capita income levels are approximately 11% and 25% below that of the state and nation, respectively, and the unemployment rate estimate for April 2009, measured at 11.4%, is above the state and national averages.

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.