Fitch Upgrades $27B In Bonds With New Wtr/Sewer Guidelines.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 7, 2000

Fitch, the international rating agency, today upgrades $13 billion of outstanding U.S. municipal water/sewer debt, listed below. The bond ratings have been changed due to a new rating scale and guidelines developed because of Fitch's breakthrough 1999 study of municipal default risk. The study suggested that the sector was underrated. Including previously announced water/sewer upgrades since late 1999, the new guidelines have contributed to changes in 47% of Fitch's ratings in the sector, affecting $27 billion of outstanding bonds.

Fitch's average rating for the sector has been increased to the `A+/AA-' range, with 90% of ratings now placed between `A-` and `AAA'. In the past, ratings were typically between `BBB-' and `AA'. Major water and/or sewer bonds upgraded today include ones of the Massachusetts Water Resources Authority, Los Angeles (wastewater and Department of Water and Power water bonds), Philadelphia, Miami-Dade County, and San Diego. Bonds of water/sewer enterprises in Durham and Charlotte, NC, as well as Fairfax County, VA's sewer system, were upgraded to `AAA' due to the health of their service areas and stability of their operations. Related to the sector review were previously announced upgrades of water and/or sewer bonds of New York City, Detroit, San Antonio, Houston, and Memphis.

The default study found 20-year historical default rates for the sector to be 1/15th that of `AA' corporate bonds and a stunning 1/65th that of `BBB' rated corporate debt.

`Fitch's default study suggests that water and sewer may have been public finance's most underrated sector. As promised, after examining the industry's history, its future prospects, and each individual rating, Fitch has made our ratings more accurate and released revised guidelines,' said Jason Dickerson, a Fitch Director who coordinates the water/sewer ratings group in the agency's New York, Chicago, Austin, and San Francisco offices.

Frank Rizzo, Fitch's Group Managing Director for U.S. Public Finance, said, `As with other changes announced because of the Fitch municipal default study, more accurate ratings will help water and sewer bond issuers assume more appropriate borrowing costs and investors receive fair returns commensurate with risk.'

Discussing the guidelines, Dickerson said, `Municipalities' abilities to use their monopoly power over water and sewer service provision to accumulate service fees for operating and debt expenses has been at least comparable to their ability to collect taxes for similar general government purposes.' Consistent with this finding, average ratings for the tax-supported and water/sewer sectors are now the same.

Fitch believes that the last 30 years of increasing infrastructure mandates under the U.S. Clean Water Act (CWA) and Safe Drinking Water Act (SDWA) have not proven as detrimental to credit health as earlier feared. While state and federal environmental mandates will continue to require improvements that increase the safety of water supplies, most utilities have kept rates reasonably affordable - around 1% of median household income, on average - despite ongoing CWA and SDWA upgrades.

Fitch notes that some utilities are affected more than others by continuing ramp-up of mandates, including ones for sewer overflows, reduction of contaminant loads in threatened waterways, and microbial and disinfectant byproduct drinking water contamination. Ratings will continue to be sensitive to those issues, as well as the increasing cost of maintaining aging facilities mandated by earlier regulations. According to Fitch, water supply scarcity, such as that increasingly faced in the Sun Belt and California, will also become more critical, as population growth strains sources further.

Fitch's guidelines now list the `ten C's' of its analysis in the sector: 1) community characteristics, 2) customer base, 3) capacity, 4) compliance with environmental regulations, 5) capital demands and debt policies, 6) coverage and financial position, 7) covenants, 8) cash and the balance sheet, 9) charges (rates), and 10) `the crew,' an informal term for management strength. Similar to Fitch's earlier announcements for tax-supported debt, these guidelines promise a much sharper focus on high-quality management practices, sometimes overlooked in the past, that Fitch believes will help keep operating performance stable.

For a copy of `Secure Credit On Tap: Municipal Water/Sewer Ratings Move Upward,' which will be available later today, please visit Fitch's web site `www.fitchibca.com'. Also available is the Fitch IBCA research report `Impact of Management Practices on Municipal Credit' dated May 4, 2000, `Credit Ratings in the 21st Century' dated March 6, 2000, and `Municipal Default Risk' dated Sept. 15, 1999. Recent research reports for many issuers can also be found at the web site, or contact Media Services at 1-800-853- 4824.

Today's upgrades for U.S. water and sewer bonds are listed by state below:

CALIFORNIA

--Borrego Water District, CA certificates of participation for

Improvement District No. 4, to `BBB+' from `BBB-',

--Helix Water District, CA installment purchase certificates of

participation, 1999 series A, to `AA' from `AA-',

--Los Angeles Department of Water and Power, CA water works

revenue bonds, to `AA+' from `AA',

--Los Angeles, CA wastewater system revenue bonds, to `AA-' from

`A+',

--Public Facilities Financing Authority of San Diego, CA sewer

revenue bonds, to `AA-' from `A+'.

COLORADO

--Westminster, CO water and wastewater utility enterprise revenue

bonds, to `AA-' from `A+'.

DISTRICT OF COLUMBIA 

--District of Columbia Water and Sewer Authority public utility

revenue bonds, to `A+' from `A'.

FLORIDA

--Hillsborough County, FL refunding and improvement utility

revenue bonds, `A' from `A-',

--Manatee County, FL public utility system revenue bonds, to `AA'

from `A+',

--Miami-Dade County, FL water and sewer system revenue bonds, to

`A+' from `A',

--JEA (formerly Jacksonville Electric Authority), FL water and

sewer system revenue bonds, to `AA' from `AA-',

--Naples, FL water and sewer revenue bonds, to `AA+' from `AA-',

--Polk County, FL utility system revenue bonds, series 1997A and

1997B, to `A+' from `A',

--St. Augustine, FL water and sewer revenue bonds, to `A' from

`A-',

--Winter Haven, FL utility system improvement and refunding

revenue bonds, series 1998, to `A+' from `A'.

MASSACHUSETTS

--Boston Water and Sewer Commission, MA general revenue bonds, to

`AA-' from `A+',

--Massachusetts Water Resources Authority, MA general revenue

bonds, to `AA-' from `A+',

--Massachusetts Water Resources Authority, MA subordinated general

revenue bonds, to `A+' from `A'.

MICHIGAN

--Alpena, MI water supply and sewage disposal revenue bonds,

series 1998, to `A-' from `BBB+',

--Chikaming, MI water supply system revenue bonds and revenue

refunding bonds, series 1994, to `BBB+' from `BBB',

--Lansing, MI sewage disposal system revenue and revenue refunding

bonds, to `AA-' from `A+',

--Pontiac, MI sewage disposal system revenue bonds, series 1995,

to `BBB-' from `BB+',

--Pontiac, MI water supply system revenue bonds, series 1995, to

`BBB-' from `BB+'.

MISSISSIPPI

--Hattiesburg, MS water and sewer system revenue bonds, series

1995, to `A+' from `A'.

NEW JERSEY

--Passaic Valley Water Commission, NJ water revenue bonds, to `A'

from `A-'.

NEW YORK

--Water Authority of Western Nassau County, NY water system

revenue bonds of 1996, to `AA-' from `A+'.

NORTH CAROLINA 

--Charlotte, NC water and sewer system revenue bonds, to `AAA'

from `AA+',

--Durham, NC water and sewer revenue bonds, to `AAA' from `AA',

--Orange Water and Sewer Authority, NC water and sewer system

revenue bonds, to `AA+' from `AA'.

PENNSYLVANIA

--Erie City Water Authority, PA water revenue bonds, to `A- ' from

`BBB',

--Lehigh County Authority, PA sewer revenue bonds, 1996 series

(Western Lehigh Interceptor), to `A+' from `A-',

--Philadelphia, PA water and wastewater revenue refunding bonds,

to `A-' from `BBB+'.

TEXAS

--Cleburne, TX waterworks and sewer system revenue bonds, series

1999, to `A+' from `A',

--Laredo, TX sewer system revenue bonds, to `A+' from `A',

--Laredo, TX waterworks system revenue bonds, to `A+' from `A',

--Pasadena, TX waterworks and sewer system revenue bonds, to `A-'

from `BBB+',

--San Angelo, TX waterworks and sewer system revenue bonds, to

`A+' from `A'.

VIRGINIA

--Fairfax County, VA sewer revenue bonds, to `AAA' from `AA'.

--Henrico County, VA water and sewer system revenue bonds, to

`AA+' from `AA'.