NEW YORK - (Business Wire) Fitch Ratings assigns an 'A+' rating to the City of Gastonia, North Carolina's (the city) $23,035,000 combined utilities system revenue refunding bonds, series 2009 (the bonds). The bonds are expected to price via negotiated sale on July 23. Bond proceeds will be used to currently refund certain maturities of the outstanding 1998 bonds and advance refund certain maturities of the outstanding 2001 bonds for debt service savings. Fitch also affirms the 'A+' rating on approximately $14 million aggregate principal amount of series 2001 and series 2005 bonds expected to remain outstanding after the proposed sale. The Rating Outlook is Stable. The rating reflects the utility system's stable financial performance, marked by healthy operating margins and debt service coverage ratios, very low debt levels and modest capital needs owing to the system's ample treatment and water supply capacity, and competitive service rates. The rating also considers the economic challenges facing the service area due to its exposure to manufacturing and textiles, very high levels of unemployment, and below average income levels.
The Stable Rating Outlook reflects the expectation that coverage levels will remain consistent with historical results, supported by recently approved rate adjustments, the absence of significant leveraging plans, and the potential for system growth due to the addition of new bulk customers.
The system provides water and sewer service to approximately 84,500 residents within the city, portions of unincorporated Gaston County, and municipalities located in other areas within the county and one in South Carolina. The system's customer base is predominantly residential in nature. The top 10 customers, which collectively represent 15% of total operating revenues, include six municipal customers and a large industrial user that receive service under long-term, minimum volume-billed contracts.
The city's permitted water allocation is anticipated to meet the raw water needs of the system through 2050. Water and sewer treatment capacity is ample. System facilities are reportedly in good condition with no major repair or replacement needs and compliant with all federal and state regulations. Debt levels are very low and future capital needs are limited. The city anticipates issuing approximately $10 million in additional parity bonds in 2011 at the earliest. To support the additional debt service and other pay-go needs, the city recently adopted a series of rate adjustments that will increase utility bills on average 25% through fiscal 2014. Rates for water and sewer service, which were last adjusted by 1% in fiscal 2007, are expected to remain competitive compared to regional peers.
The system has consistently generated strong operating margins and debt service coverage levels. In fiscal 2008 coverage of senior lien debt service, which includes state revolving fund loans, was 2.6 times (x), and coverage of total debt service, including GO bonds issued to finance system improvements, was 1.9x. The city is anticipating similar coverage levels for fiscal 2009. The utility system reported 263 days cash on-hand at the close of fiscal 2008, which is considered below average but an improvement from 167 days cash on-hand in fiscal 2004.
The city is located in the Piedmont region of North Carolina approximately 20 west of Charlotte (Fitch GO bonds rated 'AAA' with a Stable Outlook). Proximity to the broad and balanced Charlotte economy should prove beneficial in the long term. However, at present, the local economy remains heavily influenced by the manufacturing sector, particularly textiles and automotive. Unemployment within the city continues to rise sharply reaching 13.1% as of April 2009 (up from 8.6% six months prior). Wealth levels, as measured by per capita income and median household income, are only 93% and 86% of the state average, respectively. According to the city, the economy has not had a material impact on the operations of the system to date, as collection rates remain fairly consistent with prior years, and there is no indication of out-migration or increased disconnections.
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Fitch Ratings, New York
Michael Rinaldi, 212-908-0833
Barbara Rosenberg, 212-908-0731
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
