Fitch Upgrades Greensboro, NC Enterprise Revs to 'AA+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 20, 2003

Fitch Ratings assigns a 'AA+' long-term ratings to Greensboro, NC's approximately $36,310,000 combined enterprise system revenue bonds, series 2003A and $10,000,000 combined enterprise system revenue bonds, series 2003B. At this time, Fitch upgrades the rating on the city's $122 million in outstanding combined enterprise revenue bonds to 'AA+' from 'AA'. The bonds are scheduled to sell in early July through negotiation by a syndicate led by Banc of America Securities, L.L.C. Series A bonds, which are fixed-rate, mature June 1, 2005-2025. Series B bonds have a variable-rate and are due June 1, 2025-2028. Closer to closing, Fitch Ratings will assign a short-term rating to the series B bonds based on a liquidity facility provided by Bank of America, N.A. Bond proceeds will fund various system improvements and additions, including construction of a water resources operations center and a number of sewer pumping stations, and reimbursement for a transmission system to move water from the Haw River. The Rating Outlook is Stable.

The 'AA+' rating is based on the combined enterprise system's sound financial operations, with good debt service coverage, thorough planning, and sound cash balances; strong service area; low rates; and adequate water supply. The upgrade is based on the city's significant progress toward establishing a long-term water supply, the lack of which had been a significant credit concern. Recent actions to address supply issues include conservation measures instituted during a recent drought, interconnections with area utilities, and access through an interbasin transfer of water from the Haw River. These efforts will provide sufficient capacity through at least 2010. By that time, the Randleman Reservoir Project should be completed. The reservoir will supply several local water systems who are members of the Piedmont Triad Regional Water Authority (the authority), the largest of which is Greensboro, with a long-term water source.

Credit concerns are minor and include uncertainty regarding cooperation among members of the authority on issues related to development of the Randleman project, and the increasing debt burden resulting from bond issues that will fund 83% of the city's $167 million six-year capital improvement plan and require sizable rate increases. The former is offset by progress to date and lessened urgency for Greensboro in completing the project because of the increased in purchased supply. The rising debt and attendant rate increases are offset by the utility system's strong balance sheet, current moderate debt levels, and low rates.

The combined water and sewer system's financial position is sound. The customer base is well-diversified and was able to withstand the loss of a major customer in 2001. Annual debt service coverage has exceeded three times (x) in each of the last four years, and has surpassed projections, although estimates indicate that it may dip below 2x in fiscal 2003. Projected coverage of parity is expected to be at least 1.9x through fiscal 2008, well above the city's rate covenant of 1.2x senior obligations. Coverage of combined senior and subordinate debt service, the latter generated by state revolving fund loans and general obligation bonds, is projected to exceed 1.7x between fiscal years 2004 and 2008. As of year-end fiscal 2002, the city's combined enterprise system had unrestricted cash on hand equal to about seven months of operating expenditures.

Greensboro's $167 million projected capital expenditures over the next six years will put pressure on currently low rates. Approximately 83% of the planned capital expenditures will be debt financed. Substantial rate increases of 8-11% annually are projected in both the water and sewer systems to fund the capital plan, but the city's customer base has shown the ability to absorb similar rate increases in the past. Given that the city's rates are low relative national norms and other systems in North Carolina, and that other systems will experience rate increases at the same time, Greensboro's rates should remain competitive. The rate increases may be smaller if the city is not subject to new, more stringent, wastewater treatment regulations proposed by the state.

Greensboro's steadily growing economy is diverse, although growth has slowed in the past two years. Local industries produce a wide range of products, such as textiles, apparel, tobacco, machinery, and electronics equipment. City and area unemployment rates increased dramatically in 2001 and 2002, consistent with the state's performance, but rates have moderated in recent months. Income levels are above state and national averages.