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July 20, 2005 05:17
PM US Eastern Timezone
Fitch Rates
Sacramento County Auth., California Sewer Bonds
'AA'
AUSTIN, Texas--(BUSINESS WIRE)--July 20,
2005--Fitch assigns an 'AA' to the Sacramento
County Sanitation Districts Financing Authority,
CA (the authority) $69.0 million revenue bonds,
refunding series 2005 (Sacramento Regional
County Sanitation District). Additionally, Fitch
affirms the 'AA' rating for the authority's
$894.9 million prior lien revenue bonds
outstanding (post refunding), the 'AA' rating on
the $100 million outstanding series 2000C
subordinate lien variable-rate revenue bonds,
and the 'AA-' rating on the $250 million
outstanding series 2004B subordinate lien
variable-rate revenue bonds. The series 2005
bonds are scheduled to sell the week of Aug. 1
via a negotiated sale managed by UBS Financial
Services Inc. The Rating Outlook is Stable.
The bonds are limited obligations of the authority, payable from
revenues received from the Sacramento Regional
County Sanitation District (the district)
pursuant to an installment purchase contract
entered into by the authority and the district.
District payments on the series 2005 bonds are
payable from and secured by a first lien on the
net revenues of the district. Proceeds will be
used to refund a portion of the authority's
outstanding parity debt for annual interest
savings and to pay issuance costs.
The ratings reflect the district's sound
financial condition, experienced management
team, and healthy and diversified local economy.
Recent operating results have been characterized
by positive margins and healthy and increasing
reserves. The ratings also incorporate a large
and increasing debt burden, which is the product
of a very large five-year capital plan, and the
potential impact of pending discharge
regulations on the district's financial
condition. Despite an acceleration of the
district's capital program, Fitch considers the
anticipated rate and fee increases reasonable
and views the projected debt service coverage
levels as adequate.
The district serves as the wholesale
wastewater provider for the greater Sacramento
area. Formed in 1973, the district owns a
regional treatment plant and a network of
interceptor lines and lift stations; it also
recently opened a biosolids recycling facility.
The district has no employees but contracts
administrative functions and the bulk of its
operations activities to Sacramento County. The
district's service area includes the City of
Sacramento and four smaller communities, as well
as the unincorporated areas of the county. The
cities of Sacramento and Folsom and Sacramento
County Sanitation District No. 1 are the local
retail wastewater service providers that convey
flows to district facilities.
The district's five-year capital improvement
plan (CIP) totals $1.3 billion, the majority of
which is for construction of new wastewater
interceptors. In 2000, the 20-year CIP totaled
$1.3 billion; district officials attribute the
accelerated timeframe to increasing development
in the service area, acceleration of permit
requirements, and sharply higher cost estimates
for CIP projects. Financial forecasts include
pay-as-you-go funding of roughly 10% of total
CIP needs through fiscal 2009; the remainder
will be financed with bonds, the majority of
which have been issued. Projected capital needs
beyond the five-year planning horizon currently
total more than $400 million.
The district currently charges a monthly fee
of $15.40 per equivalent single family
connection. A typical monthly retail wastewater
bill in the service area appears affordable,
when measured against other major western U.S.
cities and against local income levels.
Anticipated rate increases are expected to
produce a monthly fee of $21.25 by fiscal 2010.
The district also charges a connection fee of
$6,500 per equivalent connection. Connection
fees have become an important district revenue
source, climbing from less than 30% of service
fee revenues in fiscal 1999 to more than 60% in
fiscal 2004. While Fitch views this reliance on
connection fee revenue negatively, the district
maintains substantial liquidity, and the
expectation of continued steady growth in the
county appears reasonable.
Operating results have been positive over the
past five fiscal years, and the district has
increased reserve levels significantly during
this period. Combined reserves exceed the
district's target of $100 million. Likewise,
debt service coverage levels have been healthy,
averaging roughly 3 times (x) annual debt
service from fiscal years 1999-2004. Prior lien
debt service is projected to decline to below
2.0x over the next five fiscal years as debt
levels increase. However, they are expected to
remain above the required threshold of 1.20x
debt service.
The district's discharge permit expires in
August 2005.
In conjunction with the permit renewal process,
the district is contesting permit provisions
related to mercury and lindane discharges.
The current CIP includes $10 million for a
mercury offset program. If implementation of
either or both of the regulatory provisions is
required, the district could face significant
increases in spending on capital and/or
programs.
The Sacramento area economy is diversified;
leading employment sectors include state
government, electronics manufacturing, food
processing, and health care. Local unemployment
rates historically have been below the state
average, and local wealth indicators generally
are just below state and national averages.
Fitch's rating definitions are available on
the agency's public web site,
www.fitchratings.com. Published ratings,
criteria and methodologies, and relevant
policies and procedures are also available from
this site, at all times. This document will
remain on the public site for seven days.
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