REVENUE AND REFUNDING BONDS 'AA+' -- OUTLOOK STABLE
Fitch Ratings-New York-14 December 2010: Fitch Ratings assigns an 'AA+' rating to the following
Manatee County, FL (the county) public utilities revenue and refunding bonds:
--Approximately $10.6 million, federally taxable - direct payment - public utilities revenue
improvement Build America Bonds (BABs), series 2010 A;
--Approximately $45.1 million, federally taxable - direct payment - public utilities revenue
improvement recovery zone development bonds, series 2010 B;
--Approximately $21.9 million, public utilities revenue refunding bonds, series 2010 C;
--Approximately $5.6 million, taxable public utilities revenue improvement bonds, series 2010 D.
The bonds are expected to sell via negotiation on Dec. 15, 2010. Bond proceeds will be used to
finance the costs of system additions, improvements, renewals, and replacements, to refund a
portion of the series 2003 bonds for savings, and pay costs of issuance.
In addition, Fitch takes the following rating action on Manatee County's outstanding public utilities
--Approximately $85 million (prior to the refunding) series 1991C, series 2001A, series 2003, and
series 2006, affirmed at 'AA+'.
The Rating Outlook is Stable.
--The system's historically sound debt service coverage is expected to weaken over the next few
years; however, solid liquidity, conservative budget assumptions, and good rate affordability
mitigate this risk.
--Debt service obligations decline notably in fiscal 2014, contributing to an improvement in the
debt service coverage ratio to a level commensurate with past performance.
--The system's debt levels are low, and expected to remain below average despite additional
--System capacity is solid, and capital needs are manageable and will focus on upgrades and general
--Despite the downturn in the national economy and the still soft local housing market, the
long-term economic profile of the service area remains sound.
--Legal provisions are slightly below average with a 1.15 times (x) net revenue rate covenant and
additional bonds test.
KEY RATING DRIVERS:
--Fitch expects debt service coverage levels to return to prior norms during the financial forecast
period, while maintaining sound overall liquidity and rate affordability.
--Near-term capital needs are manageable; however, Fitch notes significant changes in water supply
needs could impact the county's operating profile and debt position.
The bonds are secured by a senior lien pledge of the combined net revenues of the water, sewer,
solid waste, and storm water systems. The 2010 bonds are not expected to have a debt service
reserve fund, which Fitch notes is a break from past practices. Any additional bonds issued under
the 2010 supplemental bond resolution will similarly be issued without a debt service reserve. In
addition, federal direct subsidy payments will be included in the definition of net revenues.
Annual financial performance has been mostly stable. In fiscal 2009, the combined system
generated $40 million in net operating revenues for debt service (not including impact fees),
generating all-in debt service coverage (which includes senior bonds and subordinate lien state
revolving fund [SRF] loans) of 2.0x, which is slightly better than results for the prior two fiscal
years. However, for fiscal 2010 (unaudited), the system projects a decline in revenues and weaker,
albeit still good coverage of 1.66x on an all-in basis. On a pro forma basis, the system expects all-in
coverage to further weaken to a range of 1.2x-1.3x through fiscal 2013, which Fitch considers
well-below average for the rating. However, the system amortizes debt rapidly, and in fiscal 2014
debt service declines by nearly 20% to $17.3 million, contributing to an improvement in the debt
service coverage ratio to 1.52x.
In addition, expenditure growth assumptions are believed to be conservative, and the pro forma
excludes the receipt of the federal direct subsidy payments related to the current BABs issuance
(estimated at $1 million to $1.4 million annually). The system has historically maintained a solid
liquidity position - entering fiscal 2010 the combined system reported $91 million in unrestricted
cash, which is equivalent to 360 days of operations. Fitch also notes rate raising flexibility, with the
average residential monthly bill for water and sewer service at $60, or 1.5% of median household
income. The forecast includes very moderate 2.25% rate increases annually over the next few years.
The system's debt burden is low with debt per customer projected to be $840 after issuance. The
system's five-year capital improvement plan (CIP) totals $226 million. The county plans to fund
approximately 50% of the plan on a pay-as-you-go basis, helping to preserve the modest debt
burden. Officials expect to issue approximately $38.3 million in additional debt in 2012-2013,
which would increase debt per capita to roughly $1,000, but still remain below average for the
The Manatee County utility system provides water, wastewater, solid waste and stormwater
services to 260,000 county residents. The county (general obligation rating of 'AAA' by Fitch) is
located along the Gulf of Mexico in central Florida and has a population of approximately 315,000.
The economy, which has historically been concentrated in tourism and services, has diversified in
recent years with the addition of health care services and light manufacturing. Following the
broader economic and housing downturn, the area economy remains soft with a slowdown in
building permit activity, stagnant employment growth, and a still high unemployment rate of 11.7%
in October 2010. County median household income is roughly equal to state levels, but is only 92%
of the nation.
The water system includes an 84 million gallon per day (mgd) treatment plant, a combination of
surface and groundwater supply, and over 99,000 mostly residential customers. The system also
provides water on a wholesale basis to four municipalities under long-term contracts, including
Sarasota County (utility system revenue bonds rated 'AA' by Fitch). Water supply comes from Lake
Manatee, a man-made reservoir with 23,000 acre feet of capacity, and groundwater from local
supply wells. On a combined basis, the system has nearly 53 mgd of water supply, which
comfortably meets demand of roughly 32 mgd.
The wastewater system includes three treatment plants with a combined capacity of 33.5 mgd, over
1,100 miles of collection/transmission mains and nearly 88,000 retail accounts. The system
provides secondary treatment and most of the treated effluent is reused for agricultural and golf
course use. The system's treatment facilities processed 22.5 mgd of flow in 2009, leaving the
system at roughly 67% of capacity utilization. The solid waste system consists of the county-owned
landfill with a 32 year estimated useful life, leachate management facilities, and a landfill gas
collection system. Garbage collection is contracted with two waste hauling companies through
franchise agreements through 2016 (with renewal options). The solid waste system has 120,500
residential customers. The county's stormwater management system consists of 1,500 miles of open
ditches and canals.
One State Street Plaza
New York, NY 10004
Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526, Email:
In addition to the sources of information identified in the 'U.S. Revenue-Supported Rating Criteria',
dated 8 Oct. 2010, this action was additionally informed by information from Prager, Sealy & Co.,
LLC (the financial advisor), Public Resources Management Group, Inc. and McKim and Creed, PA
(the consulting engineers), IHHS Global Insight, and LoanPerformance, Inc.
Applicable Criteria and Related Research:
--'U.S. Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
--'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 6, 2008.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Water and Sewer Revenue Bond Rating Guidelines
Revenue-Supported Rating Criteria
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