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REVISED REPORT, CORRECTION TO NOTE SECURITY; MOODY'S ASSIGNS MIG 1 RATING TO CITY OF FORT WAYNE'S (IN) $17.8 MILLION WATERWORKS UTILITY REVENUE BOND ANTICIPATION NOTES, SERIES 2011

26 Jan 2011

Aa2 RATING AFFIRMED ON UTILITY'S $43.2 MILLION OUTSTANDING REVENUE BACKED DEBT

Municipality
IN

Moody's Rating

ISSUE

RATING

Waterworks Utility Revenue Bond Anticipation Notes, Series 2011

MIG 1

  Sale Amount

$17,840,000

  Expected Sale Date

02/08/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Jan 26, 2011 -- Correction to Moody's Summary Ratings Rationale and Detailed Credit Discussion to reflect accurate security language for Waterworks Utility Revenue Bond Anticipation Notes, Series 2011. Revised release follows.

Moody's Investors Service has assigned a MIG 1 rating to Fort Wayne's (IN) $17.8 million Waterworks Utility Revenue Bond Anticipation Notes, Series 2011. Concurrently, Moody's has affirmed the Aa2 rating on the utility's $43.2 million outstanding net revenue-backed debt.

SUMMARY RATING RATIONALE

The BANs, which mature February 8, 2012, are payable from the proposed City of Fort Wayne, Indiana Waterworks Utility Revenue Bonds, expected to be issued in early 2011. The long-term Bonds will be payable and secured from the Net Revenues of the Utility. Net Revenues are defined as gross revenues after deduction only for the payment of the reasonable expenses of operation, repair and maintenance, but not including depreciation and payments in lieu of taxes. Proceeds of notes will refund the utility's Waterworks Utility Revenue Bond Anticipation Notes, Series 2010. Affirmation of the Aa2 rating reflects the essential nature of the services provided; satisfactory debt coverage ratios; average legal protections; somewhat limited rate setting flexibility; and manageable debt profile. Assignment of the MIG1 rating reflects these factors along with our expectation of continued market access.

STRENGTHS:

- Large and relatively low degree of concentrated customer base

- A history of relatively strong debt service coverage

CHALLENGES:

- Limited rate setting flexibility

- Above average debt burden

DETAILED CREDIT DISCUSSION

DEMONSTRATED MARKET ACCESS

The utility will likely retain favorable access to capital markets given a history of competitive bids on previous borrowings. Notably, management has strengthened the current offering by updating its ordinance which now requires the BANs to be refunded through a negotiated sale. The BANs are expected to be retired with long term debt; however the utility is first required to receive approval from the Indiana Utility Regulatory Commission. Officials anticipate submitting a proposal in March 2011 for approval of the long term issuance and a rate increase. Should authorization necessitate additional note refunding, the utility retains flexibility as the statutory limitation on rolling BANs is a total of five times. The current BANs were initially offered in 2008 for the acquisition of Aqua Indiana and represent the third refunding.

SERVICE AREA ENCOMPASSES REGIONAL ECONOMIC HUB FOR NORTHEASTERN INDIANA

Located 116 miles northeast of Indianapolis (GO rated Aaa/ stable outlook) and transverse by Interstate 69, the City of Fort Wayne is the state's second most populous city and the industrial, agricultural and transportation center for northeastern Indiana. It's sizeable $8.5 billion tax base recently underwent a series of annexations of surrounding communities, with the largest one in state history representing over 25,000 people, effective January 1, 2006. The Southwest Extended Annexation, or Aboite annexation, added some of the area's more affluent communities to city tax rolls (census 2000 figures record its per capita income at 185% of the state). Manufacturing has been, and continues to be, the backbone of the local economy, though over recent years, its growing presence as a health care hub and increasing importance of financial services has served to diversify the local economy. Favorably, uncertainty regarding GM's stability in the area is somewhat mitigated by expectations of an addition of a third shift and approximately 700 jobs. Such gains however are offset by layoffs at many employers, spanning a variety of industries which has caused the city's unemployment rate to spike to 10.1% compared to the state's rate of 9.2% for October 2010.

A relatively low degree of customer concentration, along with the essential nature of the services provided will lend stability to the water utility operations. The water system's service area covers most of the city and portions of the surrounding area, with approximately 91% of the current customer base within the city limits. Although the utility has not gained the residents incorporated through the Aboite annexation, it has expanded significantly due to the acquisition of Aqua Indiana's north assets in February 2008. The acquisition included approximately 8,400customers which have been fully integrated into the utility. Water is drawn from the St. Joseph River into the utility's Three River Filtration plant, originally constructed in 1933. The facility has excess capacity, currently 72 million gallons per day, with a 2010 average daily flow of 29.4 MGD and peak flow of 54.2 MGD. The utility's 10 largest customers account for a low 7.40% of fiscal 2009 billings and 13.34% of consumption. The City of New Haven and General Motors, the two largest customers, accounting for 6.5% of total consumption and 3.65% total fiscal 2009 billings, have special rate agreements in place with the utility.

HISTORICALLY HEALTHY COVERAGES WITH AVERAGE LEGAL COVENANTS

While the current notes are payable from the expected long-term financing, the utility's outstanding revenue bonds are secured by the net revenues of the system (gross revenues less reasonable operation and maintenance expenses, but before depreciation and PILOT payments). Excess money left after O&M and debt service will go to meet the reserve requirement for the Reserve Account. Revenues left after this point will be deposited into a Depreciation Fund, which can be used for the costs of additions, improvements, and extensions. Funds from this account can also be transferred to the O&M account or Sinking Fund if there is a deficiency. In addition to a debt service Reserve Account, bondholder protections include a 1.2 times rate covenant and 1.25 times additional bonds test. Historically, the system has maintained healthy coverage rates. Factoring in the expected long term amortization of the current notes, during peak debt service in 2019, and under no assumed rate increase, the system retains a strong projected coverage rate of 1.7 times. Over the last few years the system has maintained annual debt service coverage in excess of 2 times, with fiscal 2009 net revenues providing a satisfactory 2.2 times debt service.

Though the utility anticipates issuing future debt, the exact timing and amount of which are undetermined at this time. Notably, management does plan to seek a rate increase and approval for long-term take out financing of the current issuance. To set rates, the utility board makes a recommendation to the city council, which then must be approved by the Indiana Utility Regulatory Commission. This somewhat limited rate setting flexibility is partially mitigated by two factors. Strong existing coverage ratios allows the system sufficient time to make adjustments in response to any delays in approval for rate changes and the utility's rates fall below average, based on 2010 rate study, affording some room for rate negotiation.

ABOVE AVERAGE BUT MANAGEABLE DEBT BURDEN

The system's debt ratio was a modest 22.4% of net fixed assets and net working capital in 2009 and aside from the refunding of the current issuance, the system has limited additional borrowing plans at this time, we expect the debt ratio will remain manageable. The utility will be required to obtain the IURC's approval in order to issue any future long-term debt including the refunding of this issuance. Principal amortization of the water revenue debt is above average with 100% of principal repaid in ten years, which indicates that the system should be able to absorb future debt without significant impact to the debt ratio or financial operations. All of the system's debt is fixed rate, and the system is not a party to any interest rate swap agreements.

WHAT COULD MOVE THE RATING - UP

- Maintenance of healthy debt service coverage

- Strengthened net working capital and liquidity

- Continued 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

Number of Customers: 84,312

2010 Average Flow (MGD): 29.4

2010 Peak Flow (MGD): 54.2

2009 Operating Ratio: 60.9%

2009 Operating Revenues: $31.3 million

2009 Debt Ratio: 22.4%

Maximum Debt Service Annual Coverage (Long term issuance included): 1.7x

Payout (10 Years): 100%

Rate Covenant: 1.2x

Additional Bonds Test: 1.25x

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May, 2007.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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

Tatiana Killen
Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Backup Analyst
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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REVISED REPORT, CORRECTION TO NOTE SECURITY; MOODY'S ASSIGNS MIG 1 RATING TO CITY OF FORT WAYNE'S (IN) $17.8 MILLION WATERWORKS UTILITY REVENUE BOND ANTICIPATION NOTES, SERIES 2011
No Related Data.
© 2019 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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