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CORRECTION TO NOV. 11, 2010 RELEASE: MOODY'S ASSIGNS A1 RATING TO SAN ANTONIO RIVER AUTHORITY'S (TX) WASTEWATER SYS. REV. BONDS, SERIES 2010. MOODY'S AFFIRMS Aa3 RATING ON THE MARTINEZ-SALATRILLO CREEKS SEWAGE REV. REFUNDING & IMPROV. BONDS, SERIES 2003

11 Nov 2010

INITIAL A1 RATING ASSIGNMENT AFFECTS CURRENT SALE ONLY; Aa3 RATING AFFECTS $4.1 MILLION IN OUTSTANDING DEBT

San Antonio River Authority, TX Swr. Ent.
Water/Sewer
TX

Moody's Rating

ISSUE

RATING

Wastewater System Revenue Bonds, Series 2010

A1

  Sale Amount

$10,000,000

  Expected Sale Date

11/23/10

  Rating Description

Revenue

 

Opinion

NEW YORK, Nov 11, 2010 -- Correction to Sale Amount

Moody's Investors Service has assigned an initial A1 underlying rating to San Antonio River Authority's (SARA), TX Wastewater System Revenue Bonds, Series 2010. At the same time, Moody's has affirmed the Aa3 rating on the Martinez-Salatrillo Creeks Sewage System Revenue Refunding and Improvement Bonds, Series 2003, affecting $4.1 million in outstanding debt. Proceeds from the sale of the bonds will be used to expand the Martinez II system to a total capacity of 3.5 million gallons a day (MGD) from 2 MGD.

RATING RATIONALE

The Series 2010 bonds are secured by a first lien and pledge of the net revenues of the SARA Wastewater Utility System, also known as the Martinez Creek System, provided that they are subordinate to the 2003 Series Martinez-Salatrillo Revenue bonds, as long as they are outstanding. The Series 2003 bonds are secured by the combined net revenues of the authority's Martinez-Salatrillo Wastewater System. The rating assignment reflects the growing customer base of the system, although the rate of growth has moderated recently, historically favorable debt service coverage ratios reflecting sound fiscal practices, and adequate legal covenants.

SERVICE AREA BENEFITS FROM A STABLE ECONOMIC BASE IN SAN ANTONIO

The system serves a largely residential community located in Bexar County (Aaa/NOO), in the San Antonio (Aaa/NOO) area. The City of San Antonio benefits from a stable economy with a local employment base that includes a mix of aerospace, financial, health care, military and tourism industries. Historically, average customer connections grew by 3% to 5% annually, although the rate of growth has moderated in the recent term as evident by the decrease in impact fees, due to challenges associated with the national economy. Going forward, officials anticipate growth averaging 2% to 3% in the near term with more moderate growth over the long term, given the availability of land. Officials report no major infrastructure problems with the system. The authority has a ten-year capital projects plan which is reviewed annually to align correctly with more pressing capital needs.

The San Antonio River Authority (GO rated Aaa/NOO) owns two wastewater systems: Salatrillo Creek Wastewater System that serves wholesale customers, and the SARA Wastewater Utility System (also known as the Martinez Creek System) that serves retail customers. The SARA Wastewater Utility System consists of four plants: three located in the Martinez Creek Watershed, and one located in the Calaveras Creek Watershed. The Martinez I plant operates near its capacity of 2.2 MGD, with all excesses diverted to the Martinez II plant, which has a capacity of 2 MGD. Currently, the Martinez II plant operates at an average daily flow of 1.96 MGD, with an expansion to 3.5 MGD expected to be completed in FY 2011, with the current issuance. Currently, the system serves approximately of 9,500 connections. After expansion, the system will be sufficient to serve 15,300 connections, which is the anticipated total connection at build out, estimated to be in 30 years.

DEBT SERVICE COVERAGE REMAINS SATISFACTORY CONSIDERING EFFECTS OF ADDITIONAL BONDS

We believe the authority's historical practice of sufficient rate setting and strong financial management will continue to provide satisfactory debt service coverage. Over the past six years, the authority has exhibited strong fiscal management that has consistently maintained favorable debt service coverage levels well above 2.0 times. The security of the Series 2003 bonds is provided by the combined net revenues of the Martinez-Salatrillo Wastewater System although the bonds have historically been paid by the SARA Wastewater Utility (Martinez Creek) system. As such, the following discussion includes the Series 2003 bonds as the sole responsibility of the SARA Wastewater Utility System. In fiscal year 2009, debt service coverage was an ample 4.45 times with maximum annual debt service coverage (MADS) for prior lien (Series 2003) at a healthy 5.45 times. When considering the Series 2010, MADS decreased to a still favorable 1.94 times. In fiscal year 2010, coverage numbers reduced significantly due to sizable decreases in impact fees. The debt service coverage was a smaller, but still favorable 3.0 times, with a MADS for prior lien of a solid 3.92 times. Including the series 2010, MADS reduced substantially to an adequate 1.39 times. Due to challenges in the economy, impact fees reduced to $186,000 in fiscal year 2010 from $1.1 million in fiscal year 2009. To compensate for the decrease in revenues and in anticipation of the current sale, officials increased rates by 8.95% effective for fiscal year 2011, and another 6% for fiscal year 2012. Despite the increases, the authority's rates remains comparable with surrounding areas, and the authority has limited competition due to a defined service area. Additionally, the board has authority to set rates without approval from an oversight authority, and Moody's believes this adds strength to the credit quality of the authority.

ADEQUATE LEGAL COVENENTS PROVIDES BOND HOLDER SECURITY

Bond holder security is provided by a rate covenant equal to 1.10 times the average annual debt service, with an additional bonds test that calls for 1.25 times average annual debt service coverage, giving consideration to the effect of the additional bonds. Legal provisions also call for a debt service fund equal to the average annual debt service, which will be funded over 60 months. Additionally, the authority covenants that it will not issue any debt that is superior to the Series 2010 bonds as long as the bonds are outstanding.

KEY STATISTICS

FY 2010 Customer Connections: 9,500

FY 2010 Operating Ratio: 89%

FY 2010 Debt Ratio: 18.6%

FY 2010 Outstanding Debt Service Coverage: 3.0 times

FY 2010 Outstanding Debt Service Coverage (without impact fees): 2.67 times

FY 2010 MADS for prior lien: 3.92 times

FY 2010 MADS for all outstanding debt: 1.39 times

The principal methodology used in this rating was Analytical Framework For Water And Sewer System Ratings published in August 1999.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Adebola Kushimo
Analyst
Public Finance Group
Moody's Investors Service

Kristin Button
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

CORRECTION TO NOV. 11, 2010 RELEASE: MOODY'S ASSIGNS A1 RATING TO SAN ANTONIO RIVER AUTHORITY'S (TX) WASTEWATER SYS. REV. BONDS, SERIES 2010. MOODY'S AFFIRMS Aa3 RATING ON THE MARTINEZ-SALATRILLO CREEKS SEWAGE REV. REFUNDING & IMPROV. BONDS, SERIES 2003
No Related Data.
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