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Fitch Rates Fort Worth, Texas $112.6MM Water & Sewer Bonds 'AA+'; Outlook Stable.

AUSTIN -- Fitch Ratings assigns an 'AA+' rating to the $112.6 million water and sewer system revenue refunding and improvement bonds, series 2005 of Fort Worth, Texas. Additionally, Fitch affirms the 'AA+' rating on the system's $490.8 million of parity bonds outstanding. The bonds are scheduled to sell on or about Dec. 20 via negotiation to A.G. Edwards. The Rating Outlook is Stable.

The bonds are secured by a first lien on net revenues of the system and any other pledged revenues. Bond proceeds will refund bonds outstanding for interest cost savings, finance improvements and extensions to the water and wastewater system, and purchase a debt service reserve surety policy.

The 'AA+' rating reflects the system's history of solid financial performance, conservative budgeting practices, and diverse and healthy local economy and service area. Offsetting considerations include high debt levels and diminished debt service coverage and liquidity due to consecutive wet years that affected water sales and a sizable capital plan to address customer growth. A willingness to adjust rates to fund operations and capital requirements and a history of adequate debt service coverage add to the credit strength of the system. City council adopted sizable rate increases to be effective in 2005, which is expected to remedy liquidity and coverage concerns.

Customer growth continues at steady historical levels of 3%-4% per year despite the recent economic slowdown that produced notably higher local unemployment rates. Annual rate increases are anticipated to fund the large debt-financed component of the capital plan, addressing system improvements and extensions over the next five fiscal years. Water and wastewater rates and charges are expected to remain competitive with those of other large Texas cities, although on the high end of the range. To maintain the current high rating, a reversal of the downward trend in coverage and liquidity is essential, particularly given the significant capital plan. The recent and projected rate increases should start the financial recovery process.

Liquidity levels have declined consistently for the past four fiscal years, falling below levels that correspond with this high rating category and below the system's own policy of maintaining 20% of operating expenditures in fund balance. Preliminary financial results for fiscal 2004 indicate a further deterioration in liquidity and a slight rebound in debt service coverage from the 1.3 times (x), including subordinate lien debt, and 1.6x, including only senior lien debt recorded in fiscal 2003. These circumstances, combined with a sizable debt-financed capital plan, led city council to raise water rates 8.3% and wastewater rates 9.4% effective in calendar 2005.
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Publication:Business Wire
Date:Dec 14, 2004
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