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MOODY'S ASSIGNS AN A1 UNDERLYING RATING AND STABLE OUTLOOK TO THE CITY OF LITTLE ROCK'S (AR) $6.61 MILLION JUNIOR LIEN WASTE DISPOSAL REFUNDING REVENUE BONDS TAXABLE SERIES 2010

04 Nov 2010

A1 RATING AFFECTS $9.5 MILION OF TOTAL SENIOR AND JUNIOR LIEN DEBT, INCLUSIVE OF CURRENT REFUNDING

Combined Utilities
AR

Moody's Rating

ISSUE

RATING

Waste Disposal Refunding Revenue Bonds Taxable Series 2010

A1

  Sale Amount

$6,615,000

  Expected Sale Date

11/01/10

  Rating Description

Waste Disposal Refunding Revenue Bonds Taxable Series 2010

 

Opinion

NEW YORK, Nov 4, 2010 -- Moody's Investors Service has assigned an A1 rating and stable outlook to the City of Little Rock's $6.61 million junior lien Waste Refunding Revenue Bonds, Taxable Series 2010. The bonds are secured by a subordinate lien of net revenues from the city's solid waste disposal system. Concurrently, Moody's has affirmed the A1 rating on outstanding senior lien debt, affecting a total of $2.93 million.

RATINGS RATIONALE

The rating reflects a stable residential customer base serving the Little Rock, Arkansas area; stable financial operations and satisfactory debt service coverage that is anticipated to remain adequate for both both senior and junior lein bonds with limited plans for future bond issuance. Proceeds from the sale of the bonds will be used to refund certain maturities of the district's outstanding bonds for a net present value savings and no extension of final maturity.

LITTLE ROCK ECONOMY PROVIDES STABLE RESIDENTIAL CUSTOMER BASE

Moody's believes economic and population stability within the city of Little Rock (Aa2 general obligation rating) will continue to provide a stable customer base for waste disposal operations. The 2000 population was 183,133, a modest 4% increase from 1990. The 2009 population estimate was 191,933, a slightly stronger 4.8% increase from 2000. The city exhibits above average wealth indicators with a per capita income of $23,209 or 137.3% of the state's, and a median family income of $47,446 or 122.7% of the state's, as reported by the 2000 U.S. Census. The city's August 2010 unemployment rate of 7.5% was slightly below the state average of 7.7% and the national average of 9.5% for the same time period. The solid waste disposal system is largely based on residential disposal and includes approximately 57,600 residential and 200 commercial customers. The system's residential customer base has not demonstrated strong growth but has remained stable with 0.75% growth annually over the last four years. In fiscal 2009 residential users accounted for approximately 95.6% of the revenues of the system while commercial users accounted for the remaining 5%. The system services all residential customers located in the city and residential customers are billed monthly along with water services charges and sewer service charges. Failure to pay any portion of the bill results in automatic termination of water service. The city's solid waste division collects 100% of local residential and yard waste. The fee is currently $20.99 per month for residential customers and has not been increased since 2002 but continues to provide adequate revenues for debt service coverage. Moody's believes the predominately residential customer base and history of customer stability is a certain credit positive for the system.

AMPLE LANDFILL CAPACITY AND STABLE REVENUE STREAM

Moody's believes system operations will remain stable in the near term as the system currently faces no significant capacity issues and benefits from direct fee billing. The system provides integrated service consisting of solid waste collection, curbside/drop-off recycling, yard waste collection/composting, and landfill disposal for class I (residential waste) and class IV (construction and demolition debris). The landfill's permitted capacity is expected to be sufficient through 2065 for the class I landfill and 2032 for the class IV area based on current usage levels. Participation in solid waste and disposal at the system's landfill is mandatory for residents of the city. Waste disposed at the facility increased significantly in 2006 to 132,258 tons, compared to 81,767 the previous year, as certain private waste entities started using the city's landfill. Although tonnage has dropped since 2007, tonnage disposed remains stable at 113,740 tons in 2009. Recycling services are provided for the City under a contract with Waste Management, Inc., which expires in 2011.

Reliable residential fee revenue have kept system revenues consistent. System gross operating revenues have remained relatively flat the last three years with fiscal 2009 charges for services totaling $16.3 million. The system's cash position narrowed from $6.76 million at FYE 2008 to $4.38 million at FYE 2009 due to a significant transfer out of reserves to support the city's General Fund. Despite the transfer out, the formal reserve policy of maintaining 15% of operations in reserves was maintained and management does not anticipate drawing down reserves below the formal policy. The system's operating ratio and net take-down of approximately 64% and 35% respectfully have remained flat over the last three years.

ADEQUATE COVERAGE; NO PLANS FOR ADDITIONAL BORROWING

Moody's believes that the system's debt profile will remain manageable in the near term as no additional debt is planned in the near term and principal payout of current outstanding debt is rapid. Fiscal 2009 system net revenues of $5.8 million provided a satisfactory 1.80 times coverage of total outstanding debt service. Preliminary reports for FY 2010 indicate projected net revenues cover projected peak debt service of senior lien series 2007 bonds by approximately 16.4 times and total outstanding debt by approximately 2.1 times. The lack of rating distinction between senior and junior lien debt is reflective of the relatively small percentage of senior lien debt to junior lien debt of the system and the still adequate 2 times projected debt service coverage of total debt outstanding. Principal payout of subordinate lien debt is aggressive at 100% of principal retired by 2016, with 96.6% of total debt retired in ten years. Legal requirements are satisfactory, with a rate covenant of 1.10 times coverage, an additional bonds test with 1.10 times debt service, and a standard 10%-of-par debt service reserve with a surety option. City officials report no additional debt is anticipated in the near future.

OUTLOOK

The stable outlook reflects Moody's belief that the city's stable residential revenue base which has demonstrated historical stability will allow for continued sufficient debt service coverage and consistent financial operations.

WHAT COULD MOVE THE RATING - UP

Building and maintenance of ample reserve levels

Significant customer base expansion

Improved debt service coverage

WHAT COULD MOVE THE RATING - DOWN

Decline in debt service coverage

Decline in customer base

Narrowing of reserve levels

KEY STATISTICS

Residential customers: 57,600

Commercial customers: 200

Fiscal 2009 operating ratio: 64%

Fiscal 2009 debt service coverage: 1.80x

Fiscal 2010 (unaudited) projected peak total debt service coverage: 2.1x

Payout of principal (10 years): 96.6%

Post sale debt outstanding: $9.54 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Little Rock (City of) AR was Credit Risks and Opportunities for the Municipal Solid Waste Sector rating methodology published in October 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, 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

James Hobbs
Analyst
Public Finance Group
Moody's Investors Service

Michelle Smithen
Backup Analyst
Public Finance Group
Moody's Investors Service

Toby Cook
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS AN A1 UNDERLYING RATING AND STABLE OUTLOOK TO THE CITY OF LITTLE ROCK'S (AR) $6.61 MILLION JUNIOR LIEN WASTE DISPOSAL REFUNDING REVENUE BONDS TAXABLE SERIES 2010
No Related Data.
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