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MOODY'S ASSIGNS Aa2 RATING TO GREENE COUNTY'S (OH) $7.2 MILLION WATER SYSTEM REVENUE BONDS, SERIES 2010

19 Oct 2010

Aa2 RATING APPLIES TO $30.6 MILLION OF POST-SALE REVENUE DEBT

Greene (County of) OH Water Enterprise
Water/Sewer
OH

Moody's Rating

ISSUE

RATING

Water System Revenue Bonds, 2010 (Governmental Enterprise Revenue Bonds)

Aa2

  Sale Amount

$7,205,000

  Expected Sale Date

10/21/10

  Rating Description

Revenue

 

Opinion

NEW YORK, Oct 19, 2010 -- Moody's Investors Service has assigned a Aa2 rating to Greene County's (OH) $7.2 million Water System Revenue Bonds, Series 2010. Concurrently, Moody's has affirmed the Aa2 rating on the county's outstanding water revenue debt, affecting $30.6 million, including the current offering.

RATINGS RATIONALE

The bonds are secured by net revenues of the county's water enterprise. Proceeds will be used to retire four bond anticipation notes maturing November 3, 2010 that were originally issued for water system improvements. The Aa2 rating is based on the system's solid financial operations experiencing declines in tap-in fee revenues; satisfactory debt service coverage ratios following a rate increase; sufficient legal provisions; and an average debt ratio with no additional borrowing planned.

MODERATELY-SIZED AND STABLE CUSTOMER BASE IN GROWING GREENE COUNTY; BENEFITS FROM PRESENCE OF WRIGHT PATTERSON AIR FORCE BASE

Located in southwestern Ohio directly adjacent to the city of Dayton (Aa2/stable outlook) and encompassing the Wright Patterson Air Force Base, Greene County's (Aa2) local economy is intertwined with both the city of Dayton and the air force base. The water utility's service area primarily covers the western portion of the county near both Dayton and the air force base. The utility serves the unincorporated areas of the county and the cities of Beavercreek (Aa2), Kettering (Aa2) and the village of Cedarville. The utility provided water treatment and distribution services to 16,675 customer accounts in 2009 and the number of customers has been increasing modestly every year, though has slowed in recent years. Favorably, the utility's top customers are relatively stable entities, primarily higher education institutions, apartment complexes, and assisted living facilities. The top nine customers comprise a modest 4% of usage. Water usage has been relatively stable over the last five years, with fluctuations primarily due to weather patterns.

In recent years, the system has benefited from trends of suburbanization in the Dayton metropolitan area and growth at the Wright Patterson Air Force Base (27,000 employees). While the Dayton area has experienced challenges due to the loss of National Cash Register, Delphi, and General Motors (corporate family rating Ba2/stable outlook) over the last five years, Wright Patterson Air Force Base has continued to see growth as a result of the 2005 Base Realignment and Closure (BRAC) recommendations. The base is set to add an additional 1,200 military and civilian positions by September 2011, and the expansion is expected to lead to additional regional jobs at suppliers and related businesses. We expect the customer base will remain stable as the water utility is well-positioned to benefit from growth at the air force base as the economy recovers.

RECENT RAPID DECLINES IN BUILDING-RELATED FEES REDUCED DEBT SERVICE COVERAGE; COVERAGE EXPECTED TO IMPROVE FOLLOWING RATE INCREASES

Despite a large decline in tap-in fee revenues in 2009, we expect the system's financial operations to remain stable in the near term due to a solid net working capital balance and conservative revenue projections going forward. In fiscal 2009, Moody's calculation of the system's net working capital stood at $6.9 million, or a solid 138.1% of operating and maintenance (O&M) expenses. Unrestricted cash represented $2 million of total net working capital, or a satisfactory 28.5% of O&M expenses, above the utility's informal policy to maintain a minimum of 2.5 months of operating expenditures in cash reserves. Tap-in fees and connection charges, which represented nearly 20% ($2 million) of operating revenues in 2008, declined by 50% from fiscal 2008 to fiscal 2009. Tap-in fees and connection charges are typically generated through new construction, and the slow-down in growth in 2009 led to the reduction in fees. Favorably, management has conservatively budgeted for both economically-sensitive revenue streams to show further modest decline in 2010 and to remain relatively flat going forward. In response to the revenue decline, the utility enacted a 3% rate increase in February 2010. The county also restructured its outstanding general obligation debt, including debt supported by water utility revenues, to reduce debt service payments from 2010 to 2015, which lowered the water utility's obligations. For fiscal 2010, the utility currently expects to have surplus operations and increase its net working capital levels through an estimated $300,000 surplus following payment of debt service.

In fiscal 2009, the utility's revenue debt service coverage stood at a solid 1.58 times coverage. For total debt obligations, which includes revenue debt, state loans, and general obligation debt supported by water utility revenues, coverage fell to 1.03 times due to the reduction in tap-in fees. Projected fiscal 2011 debt service coverage (including debt service on the current issuance) yields an adequate 1.20 times debt service coverage for revenue debt and 1.0 times debt service coverage for all debt, though we note that the system expects to enact an additional rate increase in January 2011 which will raise coverage levels. Favorably, rate setting authority rests with the Greene County commissioners and no external approval is required. While the county has demonstrated an ability and willingness to leverage its rate setting authority to strengthen coverage ratios, a failure to return to historic coverage levels could affect the utility's long-term credit quality, particularly given the county's reliance on economically-sensitive connection charges and tap-in fees.

SATISFACTORY LEGAL PROVISIONS WITH FULLY FUNDED DEBT SERVICE RESERVE FUND

Legal protections included within the utility's 1991 trust agreement and Fifth Supplemental Agreement provide satisfactory security for bondholders. The rate covenant and additional bonds test stipulate that the water utility maintain rates at levels to ensure a sound 1.20 times debt service coverage on all outstanding revenue debt. In addition, the covenants require that the district maintain rates at sum sufficient levels to cover annual debt service on all outstanding debt backed by revenues of the water utility, including general obligation debt and state loans. The trust agreement also requires a debt service reserve fund fully funded with bond proceeds to meet the lesser of maximum annual debt service, 1.25 times annual debt service, or 10% of total par amount on the current issuance. The utility's additional senior lien bonds, which include the 2007A bonds, 2004 bonds, and 2001 bonds, all have debt service reserves covered by surety policies issued by FSA (senior unsecured A3/negative outlook) and MBIA (senior unsecured B3/negative outlook).

AVERAGE DEBT RATIO; NO ADDITIONAL CAPITAL BORROWING PLANNED

Officials report that recent major upgrades to the system's treatment plants will cover capacity for ten to fifteen years and no major capital needs are expected in the medium term. With a rated capacity of approximately 8.4 million gallons per day (MGD), the existing infrastructure provides ample capacity as maximum daily flow in 2009 was 6.81 MGD. At the end of fiscal 2009, the system's debt ratio was at 50.9% of net fixed assets and net working capital, and principal amortization on the system's revenue debt is rapid, with 77% repaid within ten years. Given the system's lack of additional borrowing needs and rapid principal amortization, we expect the debt burden will remain manageable.

WHAT COULD MOVE THE RATING - UP

-Substantial improvement in debt service coverage

-Substantial improvement in net working capital and liquidity

-Strong expansion of customer base

WHAT COULD MOVE THE RATING - DOWN

-Deterioration in annual debt service coverage below similarly rated enterprises

-Significant leveraging of net revenues above affordable levels

KEY STATISTICS:

System: Water distribution and treatment (closed loop)

Number of Customers (2009): 16,675 (1.96% average annual increase since 2005)

FY2009 Net working capital: $6.9 million (138.1% of FY2009 operations)

FY2009 Operating ratio: 55.0%

FY2009 Debt ratio: 50.9%

FY2009 Debt service coverage (senior lien): 1.48x

Post-sale revenue debt outstanding: $30.6 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Greene (County of) OH Water Enterprise was Analytical Framework For Water And Sewer System Ratings rating methodology published in August, 1999. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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

Emily Robare
Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S ASSIGNS Aa2 RATING TO GREENE COUNTY'S (OH) $7.2 MILLION WATER SYSTEM REVENUE BONDS, SERIES 2010
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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