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MOODY'S ASSIGNS Aa2 RATING TO GREENE COUNTY'S (OH) $820,000 SEWER SYSTEM REVENUE BONDS, SERIES 2010B

19 Oct 2010

Aa2 RATING APPLIES TO $80.2 MILLION OF POST-SALE REVENUE DEBT

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

Moody's Rating

ISSUE

RATING

Sewer System Revenue Bonds, 2010B Series (Governmental Enterprise Revenue Bonds)

Aa2

  Sale Amount

$820,000

  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) $820,000 Sewer System Revenue Bonds, Series 2010B. Concurrently, Moody's has affirmed the Aa2 rating on the county's outstanding sewer revenue debt, affecting $80.2 million, including the current offering.

RATINGS RATIONALE

The bonds are secured by net revenues of the county's sewer enterprise. Proceeds will be used to retire two bond anticipation notes maturing November 3, 2010 that were originally issued for sewer system improvements. The Aa2 rating is based on the system's solid financial operations with recent declines in economically-sensitive connection charges; 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 sewer 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 seven municipalities with treatment plants located in Beavercreek (Aa2), Sugarcreek Township (Aa2), Cedarville and Clifton. The system also provides services to customers in Montgomery (Aa1) and Warren (Aa1) counties, and these customers account for approximately 28% of total connections. The utility provided sewer collection and treatment services to over 30,000 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 5% of usage. Sewer usage has been relatively stable over the last five years, with fluctuations primarily due to weather patterns as sewer fees are assessed for most customers based on water usage.

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 sewer 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 connection charges 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 recent rate increases. In fiscal 2009, Moody's calculation of the system's net working capital stood at $6.4 million, or a solid 109.6% of operating and maintenance (O&M) expenses. Unrestricted cash represented $3.5 million, or a satisfactory 22.6% of operation and maintenance expenses, above the utility's informal policy to maintain cash reserves above 15% of operating expenditures. Connection charges, which represented nearly 10% ($1.8 million) of operating revenues in 2008, declined by 69% from fiscal 2008 to fiscal 2009. Connection charges are typically generated through new construction, and the slow-down in growth in 2009 led to the reduction in fees. In response to the revenue decline, the utility enacted a 5% rate increase in January 2010. The county also restructured its outstanding sewer revenue and general obligation debt supported by sewer utility revenues to reduce debt service payments from 2010 to 2015. For fiscal 2010, the utility currently plans to have surplus operations and increase its net working capital levels through an expected $100,000 to $300,000 surplus following payment of debt service.

The utility's operating ratio is healthy with operations and maintenance only constituting 38.4% of revenues. Nevertheless, the system's debt service coverage ratio has declined due to the high level of debt service supported by the system and the system's reliance on economically-sensitive connection charges. In fiscal 2009, the utility's revenue debt service coverage stood at a satisfactory 1.37 times coverage. For total debt obligations, which includes revenue debt, state loans, and general obligation debt supported by water utility revenues, coverage fell to 1.08 times in 2009. Due to the rate increase implemented in 2010 and an additional increase planned for 2011, the utility expects 2011 debt service coverage on post-sale debt will be greater than 2009 coverage levels. Favorably, rate setting authority rests with the Greene County commissioners and no external approval is required. The system may also collect delinquent fees by applying them to customer property tax bills, helping to ensure high rates of collection. 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.

SATISFACTORY LEGAL PROVISIONS WITH FULLY FUNDED DEBT SERVICE RESERVE FUND

Legal protections included within the utility's 1993 trust agreement and supplemental agreements provide satisfactory security for bondholders. The rate covenant and additional bonds test stipulate that the sewer 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 sewer 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 include the Series 2003 bonds, 2005 bonds, 2007A and 2007B bonds and 2010 bonds. All of the parity bonds except for Series 2007B have cash-funded debt service reserve funds. Series 2007B has a debt service reserve fund covered by an MBIA (senior unsecured B3/negative outlook) surety policy.

AVERAGE DEBT RATIO; NO ADDITIONAL CAPITAL BORROWING PLANNED

Officials report that recent major upgrades to the system's treatment plants will cover capacity for twenty years and no major capital needs are expected in the medium term. The last major capital improvement to the system involved upgrades at the Sugarcreek treatment facility and was completed over the last year. Approximately 60% of wastewater flow processed at the facility comes from Montgomery County, and the utility expects to receive funds from Montgomery County to support debt service on the state loans that were borrowed to fund the upgrades. At the end of fiscal 2009, the system's debt ratio was at 45.4% of net fixed assets and net working capital. Principal amortization on the system's revenue debt is below average, with 53% repaid within ten years, though matches the useful life of the assets being financed. We expect the system's debt will remain manageable due to the lack of borrowing plans in the medium term.

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: Wastewater collection and treatment (closed loop)

Number of Customers (2009): 31,285 (2.2% average annual increase since 2005)

FY2009 Net working capital: $6.4 million (109.6% of FY2009 operations)

FY2009 Operating ratio: 38.4%

FY2009 Debt ratio: 45.4%

FY2009 Debt service coverage (senior lien): 1.37x

Principal amortization (ten years): 53%

Post-sale revenue debt outstanding: $80.2 million

PRINCIPAL METHODOLOGY

The principal methodology used in rating Greene (County of) OH Sewer 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, 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) $820,000 SEWER SYSTEM REVENUE BONDS, SERIES 2010B
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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