Fitch Rates Tarrant Regional Water District, Texas' Water System Revenues 'AA'; Outlook Stable
Source: Business Wire
--$93.1 million series 2010.
The bonds are expected to sell competitively on or about Feb. 2, 2010. Proceeds will be used to pay for engineering and initial right-of-way costs related to additional pipeline and pumping facilities; engineering and construction of the built-out phase of the Richland-Chambers wetlands facilities; land and right-of-way for construction of the Cedar Creek wetlands; construction of hydro generation facilities at Lake Arlington; development of new water resources, including costs associated with the acquisition of out of state water, and other system improvements. Proceeds will also be used to fund a debt service reserve fund and pay costs of issuance.
In addition, Fitch affirms the following ratings on the district's outstanding water revenue bonds:
--$476.8 million at 'AA';
The Rating Outlook is Stable.
RATING RATIONALE:
--Legal provisions are good and provide for a joint and several contract amongst the Cities of Fort Worth, Arlington, and Mansfield and the Trinity River Authority (TRA) (the contractors) for the repayment of obligations to the district, including debt service on the bonds.
--The contractors account for the vast majority of district revenues and each have credit profiles consistent with the 'AA' category.
--The contractors have the capacity to make up any revenue shortfalls of the district from delinquent customers.
--The contractors are either entirely or almost entirely dependent on the district for their respective water supplies and development of alternative sources would be cost prohibitive.
--The contract relationship between the district and the contractors is longstanding and the payment history is exemplary.
--Future capital needs are sizeable and will increase the district's debt burden.
KEY RATING DRIVERS:
--Changes in the credit profiles of the contractors could impact the district's rating.
--Continued timely payment by the contractors is critical given the nature of the relationship between the district and its customers which provide the district with limited flexibility to meet debt service requirements aside from drawing on reserves.
--Planned capital projects could place financial pressure on member agencies.
SECURITY:
The bonds are special limited obligations of the district payable from pledged revenues, which consist mainly of payments made by the Cities of Fort Worth, Arlington, and Mansfield and the Trinity River Authority (TRA; combined, the contractors) pursuant to the Tarrant County Regional Water Supply Facilities Amendatory Contract (the contract) between the district and the contractors, which obligates the contractors to purchase minimum amounts of raw water from the district.
CREDIT SUMMARY:
The 'AA' rating considers the joint and several nature of the contract, the underlying strong credit quality of the contractors, the essentiality of service provided by the district, and the exemplary historical performance of the contractors in making timely payments required under the contract. While TRWD supplies raw water to numerous other customers, the contractors account for the vast majority of both water deliveries and district revenues. In addition, each contractor is either totally or largely dependent on the district for raw water supplies. The contractors all have credit profiles in the 'AA' category, and combined have the fiscal capacity to absorb any delinquency of required annual payments to TRWD by one or more of the district's other customers. Because the credit quality of the contractors largely determines the rating on the bonds, any change in the credit profiles of the contractors, either positively or negatively, could have an impact on the district's rating. The 'AA' rating also considers sizeable capital needs that will require ongoing district debt.
TRWD's capital improvement plan (CIP) totals $1.1 billion over a seven-year period (including the current issue) that will require ongoing district debt. TRWD's debt burden is estimated to increase by 71% over the next five years (including the current issue), and by 180% over the next seven years. Fitch will monitor what impact, if any, this has on member agencies' capacity to meet their debt service obligations to the TRWD. The district's CIP focuses on the design, permitting, project management and construction costs of a 180 mile pipeline to deliver 347 million gallons per day of water from East Texas to the Dallas-Forth Worth metroplex. The project will provide the additional water supply the district anticipates will be needed in the 2018-2020 timeframe.
Effective in 1982, the contract provides the terms under which the district shall supply raw water to the contractors and the contractors agree to pay for such service. Under the contract, the contractors agree to make monthly payments to TRWD equal to the annual requirement of the district's operations and maintenance (O&M) expenses, debt service requirements (including debt service on the bonds), and any other requirement under the district's bond resolution, including replenishment of any draws on the debt service reserve fund. In the event there is a deficiency in the district's revenues required to fund such items, the contractors are required to make up this difference proportionally to their level of consumption relative to all non-delinquent customers and prior to the next debt service payment date. To date, the contractors have never failed to make timely payments to the district required under the contract.
The contractors accounted for around 91% of all water deliveries and 88% of all water payments made to TRWD in fiscal 2009. The obligation of each contractor to make TRWD annual payments is payable as an O&M expense from each contractor's water and sewer system (in the case of Fort Worth, Arlington, and Mansfield) or Tarrant County Water Project (in the case of TRA) and superior in priority to the contractor's own debt obligations. Fort Worth's (57% of TRWD fiscal 2009 water payments) water and sewer revenue bonds are rated 'AA' by Fitch, while Arlington (17%) and Mansfield's (3%) water and sewer revenue bonds are rated 'AA+' and 'AA-', respectively. Fitch does not rate TRA's debt pertaining to the Tarrant County Water Project (the project), but TRA's credit profile is consistent with the 'AA' category; TRA contributed 11% of the district's fiscal 2009 water payments.
TRA provides wholesale treated water service to five Texas cities in Tarrant County through the project: Bedford, Colleyville (water and sewer revenue bonds rated 'AA+' by Fitch), Euless, Grapevine, and North Richland Hills (the members). Similar to the contract between the district and the contractors, TRA provides service to its members under a take-or-pay contract under which members are obligated to make up any deficiency in TRA required payments, including delinquencies by other members. Also, the obligation of members to make TRA required payments is an O&M expense of their respective water and sewer utility.
TRWD operates as a water control and improvement district, providing raw water service to around 50 municipal and non-municipal entities located both within and outside of Tarrant County. Overall, the district provides water either directly or indirectly to around 95% of Tarrant County and an estimated 1.6 million people. The district is governed by a five-member, publicly elected board.
These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:
--'Revenue-Supported Rating Criteria', (Dec. 29, 2009);
--'Water and Sewer Revenue Bond Rating Guidelines', (Aug. 6, 2008).
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings, New York
Julie Seebach, +1-512-215-3740 (Austin)
Doug Scott, +1-512-215-3725 (Austin)
Media Relations:
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com