AUSTIN, Texas - (Business Wire) Fitch Ratings assigns an 'AAA' rating to Santa Fe, New Mexico's (the city) $61 million water utility system/capital outlay gross receipts tax (GRT) revenue bonds, series 2009. In addition, Fitch assigns an 'AAA' rating on the city's outstanding $48 million of outstanding water utility/capital outlay GRT revenue bonds.
Bond proceeds will be used to acquire, construct, and improve the Buckman Direct Diversion Project and the water utility system (the system), fund a debt service reserve and pay costs of issuance. The bonds are expected to sell via negotiation the week of Nov. 9. The Rating Outlook is Stable.
The 'AAA' rating reflects the system's very strong financial performance that is bolstered by a pledge of capital outlay GRT, sufficiency of long-term water supplies, and stable and diverse service area. The rating also considers moderately high water rates that are affordable when combined with wastewater charges, and high leverage ratios that are expected to decline over the long term. In addition, with the near-term completion of the Buckman Direct Diversion Project, ongoing capital costs are expected to decline significantly. This coupled with the city's plan to predominantly cash-fund its capital improvement plan (CIP), should bring leverage ratios down and ensure high financial margins going forward.
Historical financial performance has been exceptional, producing annual debt service (ADS) coverage on all debt averaging a high 3.7 times (x) from fiscal 2005 through 2008. A five-year 8.2% annual rate hike package, with effective dates beginning in March 2009, will help to maintain strong coverage results with all-in ADS averaging approximately 3.0x over the five-year forecast period. Liquidity is exceptionally strong at 1,680 days cash on hand as of fiscal 2008. While liquidity is projected to decline slightly, it should remain above the category 'AAA' median. Other financial metrics are also solid, including high operating margins that have regularly exceeded 40% and surplus revenues averaging a high 5.0x of depreciation. Individual water rates as a percent of median household income (MHI) are slightly high at 1.0% and will increase further as a result of the adopted rate hikes. However, including wastewater costs, total utility charges currently are relatively low, thereby limiting the overall impact of further hikes on the rate base.
The voters of the city approved a 0.25% municipal capital outlay GRT which became effective on Nov. 10, 2004. The tax is dedicated for system capital and supply projects. Since the tax was imposed, pledged GRTs have increased at an average annual rate of 6%. Fiscal 2009 estimates indicate receipts are slightly lower than for the previous year. Nevertheless, despite current economic conditions, GRT revenues have remained relatively steady and add an additional revenue stream to the system, enhancing its financial profile.
The city's five-year CIP is a manageable $105 million. With the completion of the Buckman Direct Diversion Project, capital needs are anticipated to fall to just $13 million annually beginning in fiscal 2011. Leverage ratios are relatively high for the rating level with debt to net plant at 65% and debt per customer at $1,843 for fiscal 2008. However, given the limited future borrowings and plans to predominantly cash-fund it's CIP, the system's debt ratios are projected to decline over the medium to long term, which should allow for financial margins to show further improvement over time.
The system currently provides water service to around 35,000 customers within the city and county. Water supplies are derived from the Santa Fe Canyon Reservoirs, eight shallow water city wells, and 13 deep water wells adjacent to the Rio Grande (the Buckman wells). In an effort to reduce its dependency on groundwater, the city is increasing its reliance on sustainable surface water with the Buckman Direct Diversion Project which will divert, convey, and treat up to 6,930 acre-feet of water per year from the Rio Grande. With completion of the Buckman Diversion Project, along with other measures being implemented, the city is well positioned to meet the long-term water needs of the city over the next 40 years.
The city is the county seat and capital of the state, located in north-central New Mexico in the foothills of the Sangre de Cristo Mountain Range. The local economy is driven by government, tourism, retail trade and industry. Unemployment estimates for August of 2009 were below county, state, and national levels at 5.6% and income levels for city residents are on par with national averages, but are 10%-20% higher than those of the state.
Additional information is available at www.fitchratings.com.
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Fitch Ratings, Austin
Julie Seebach, 512-215-3740
Doug Scott, 512-215-3725
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
