Fitch Rates Schertz-Seguin LGC, TX's $22MM Contract Revs 'AA-'; Outlook Stable
Source: Business Wire
--$22.3 million series 2010.
The bonds are expected to sell via negotiation on or around June 10.
In addition, Fitch takes the following actions:
--$48.1 million in outstanding rated contract revenue bonds affirmed at 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The credit profiles of Schertz and Seguin's utility systems are good.
--The credit quality of the LGC is further enhanced because of its own financial profile which includes healthy liquidity balances.
--The LGC has a good operating history and completed the major pipeline project on time and under budget.
--Contract provisions are strong and include the cities' debt service payments as operating expenses from their respective utility systems.
--The LGC provides an essential service to the cities of Schertz and Seguin.
KEY RATING DRIVERS:
--Deterioration in the credit quality of Schertz and/or Seguin likely would have an impact on the authority's credit profile.
--Maintenance of the LGC's financial metrics is key to maintaining the rating.
SECURITY:
The bond payment portion of the annual payments are irrevocably pledged to the payment and security of the bonds. The bond payments are paid by the cities of Schertz and Seguin to the corporation. Each city is obligated to pay its proportionate share (in an amount equal to 50%) of each annual payment, determined on a several and not joint basis. The cities must make their payments as operating expenses from their respective utility systems. The bonds are also secured by a pledge of the money in all funds created, established, and maintained by the resolution.
CREDIT SUMMARY:
The LGC, a public, non-profit corporation, was created by the cities of Schertz and Seguin in response to securing water from the Carrizo-Wilcox Aquifer in neighboring Gonzales and Guadalupe Counties. Schertz and Seguin are growing communities and required additional water supplies to meet both near term and long term needs. Due to prohibitive costs, the cities joined forces to construct a well field and collection system and treatment facilities, including a 45-mile pipeline from Gonzales County. Despite the challenges associated with developing and constructing such a project, the cross-county pipeline was successfully completed on time and within budget, with water beginning to flow to Seguin in September 2002 and Schertz in February 2003.
Financial operations of both cities' utilities are good. Schertz's utility revenue bond debt service coverage (which is paid after the LGC bonds) was a strong 4.0 times (x) in fiscal 2009. Liquidity was also healthy at 240 days working capital in fiscal 2009. Good financial performance is expected to continue and capital needs for the city are minimal as major capital projects have been completed. Seguin's combined utility system includes electric services, water, and sewer with the majority of system revenues (80%) derived from its electric customers. Fitch rates the city's utility system revenue bonds 'A+' with a Stable Outlook.
Financial performance of the corporation is also good. Due to the nature of the water supply contract, debt service has been and will continue to be around 1.0x (though was at a five-year high of 1.4x in fiscal 2009). Liquidity has declined due to increased capital spending in fiscal 2006 to 2008, though it is still adequate at 320 days cash on hand in fiscal 2009. The LGC has obtained permits for five wells from the Guadalupe District. It has purchased well sites in Gonzales and Guadalupe Counties and is in the design phase of the Guadalupe project. The fiscal 2010-2014 capital improvement plan (CIP) is around $42 million and the current debt issuance will fund 56% of the plan. Debt financing of the CIP, which includes construction of the wells in Gonzales county, storage expansion and upgrade of the LGC's control systems to include the additional wells, will allow the LGC to rebuild its cash reserves. The LGC has not yet determined how it will fund the remainder of its CIP.
Applicable criteria available on Fitch's website at www.fitchratings.com:
--'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, Austin
Julie Seebach, +1-512-215-3740
Doug Scott, +1-512-215-3725
Media Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
