Fitch Rates Sanger Public Fin Auth (CA) Lease Rev Rfdg Bnds 'BBB'
By: Financial News
Fitch Ratings assigns an initial rating of 'BBB' to $20.3 million Sanger Public Financing Authority, CA lease revenue refunding bonds (wastewater treatment facilities), series 2006A and series 2006B. The bonds are scheduled to sell competitively on Nov. 16, 2006. The Rating Outlook is Stable.
Proceeds will be used to refinance $16.6 million in outstanding variable-rate bonds as well as to finance the design of an expansion to the wastewater treatment plant. The refinancing is being done to accommodate a change in rate covenants and to back-load principal debt. The series 2006 bonds will be secured by wastewater revenues only with a backup pledge of the City of Sanger's (city) general fund until certain financial targets are met.
The 'BBB' rating reflects the wastewater system's essentiality, adequate liquidity, as well as the city's satisfactory operations and sound financial position, strong assessed valuation and population growth, low debt burden and improving diversification of its economy. Key credit risks of the wastewater system include its reliance on connection fees to cover debt service costs, above average rates and a highly leveraged system likely to remain so due to the very slow amortization. Key credit risks of the city's general fund are tax base concentration, an expanding, but still agriculturally-dominated economy and growth-related capital needs.
The system provides wastewater services for the city of Sanger, located in eastern Fresno County. Wastewater service is provided to 5,686 accounts, representing a residential population of over 23,000. User concentration is moderate with the top 10 customers providing 17% of revenues. The wastewater system consists of a 3 million gallons per day (mgd) domestic plant to treat residential wastewater and an 1.5 mgd-capacity industrial plant. The city expects to expand the plant by 2010 to increase peak capacity to 5.2 mgd to serve the growing residential population. The city estimates the cost of the expansion to be about $37 million, most of which will be financed through debt.
The bonds are secured by net sewer revenues with an initial back-up pledge of the city's general fund subject to annual appropriation. There is no rate covenant while the general fund is pledged. The city has the option to permanently remove the general fund pledge once annual net sewer revenues cover maximum annual debt service (MADS) at least 1.2x. Once net sewer revues are the sole security, the rate covenant is 1.2x MADS. The definition for net revenues includes connection fees and Fitch views negatively the dependence upon connection fee revenue to make annual debt service payments over the near term. Lease provisions are satisfactory including the maintenance of a 1.2x MADS additional bonds test and a standard reserve requirement.
Sanger is part of the Fresno metropolitan statistical area (MSA), which has experienced increasing residential development and further diversification from a historically agriculture based economy. Assessed valuation (AV) has increased an average of 6.8% per year since 2002, but taxpayer concentration remains high with the top 10 taxpayers representing 27% of total AV. Annual unemployment levels in the county itself have improved in recent years but remain high at 9% in 2005. Median family income in the county totals 77% and 86% of state and national averages. The area's affordable housing, low cost of living and available land continue to attract new residents to the area.
Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Article Source: http://www.content.onlypunjab.com Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com
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