Fitch Affirms Pine Bluff, AK's Sewer Revs at 'AA-'; Outlook Stable
Fitch Ratings affirms the rating on the following Pine Bluff, Arkansas (the city) bonds:
--$3.2 million in outstanding sewer revenue refunding bonds, series 2010 at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by a first lien on and pledge of the gross revenues of the city's sewer system (the system).
KEY RATING DRIVERS
SOUND FINANCIAL METRICS: Debt service coverage is good and is projected to improve due to lower debt service costs; liquidity levels have also improved over the prior year.
LOW DEBT BURDEN: Leverage ratios are very low and should remain low for the foreseeable future even with the proposed debt issuance. Debt amortization is very rapid.
AFFORDABLE RATES: Rates are affordable and should remain affordable given there are no planned rate increases in the near term.
LIMITED ECONOMY, CUSTOMER CONCENTRATION: The economy is limited and there is some user concentration, although concentration has diluted from previous levels.
IMPROVING COVERAGE AND LIQUIDITY
The financial performance of the city's wastewater utility has been good. Senior debt service coverage (DSC) and all-in DSC were strong at 3.8 times (x) and 2.4x, respectively for fiscal 2010. This is a sharp increase compared to the 1.9x senior DSC reported in fiscal 2009 and is largely due to reduced debt service costs as a result of the recent refunding. Liquidity for fiscal 2010 was also strong at 350 days of cash on hand, taking into account funds held in reserve for future capital needs.
MAINTENANCE FOCUSED CAPITAL PLAN
The city's five-year capital plan totals $5.6 million. Approximately 32% is forecast to be debt-funded with the remainder to be funded from operations. The utility's capital plan is primarily for rehabilitation of infrastructure, including the replacement of a sewer force main.
VERY LOW DEBT BURDEN
Leverage ratios are very favorable, with total outstanding long-term debt per customer at just $281 in fiscal 2010 versus the 'AA' categorical median of $1,615. Even with the anticipated debt issuance (expected in fiscal 2014), projected debt per customer over the next five years is expected to remain well below comparably rated credits. The utility's very rapid principal pay-out rate of 100% in 10 years is also a credit positive.
Based on the current rate structure, the average monthly bill equals 0.8% of the city's median household income, which is within Fitch's affordability threshold. Management does not anticipate rate increases in the five-year horizon and believes the current rate structure is sufficient to maintain the system.
CONCENTRATION OF INDUSTRIAL USERS
The city's sewer customer accounts are primarily residential (approximately 86%), although this category comprised only about 40% of operating revenues in fiscal 2010, followed by industrial users at 24% and commercial at 16%. The city's top three sewer customers account for a high of approximately 16% of operating revenues, led by Tyson Foods, Inc.'s (senior unsecured notes rated 'BB+' by Fitch with a Stable Outlook) chicken processing plant, which accounted for 13% of operating revenues in fiscal 2010. Other large industrial users include Arcelor, a steel belt manufacturer, and Jefferson Regional Medical Center.
AMPLE CAPACITY GIVEN DECLINING POPULATION
In fiscal 2011, the utility served approximately 15,900 customers. The city operates one wastewater treatment plant that serves five separate districts and one housing project. The city's only plant, the Boyd Point Wastewater Treatment Plant, was built in 1968 and recently expanded in 2005 to accommodate 18 million gallons per day in capacity. The system uses biological treatment with aeration ponds and is one of the largest of this type in the nation.
Pine Bluff is the county seat of Jefferson County, located in the delta region of Arkansas. The city's 2010 population of about 49,000 has been declining annually as residents have migrated to unincorporated regions of the county. Despite the modest contraction in its residential customer base, the city's industrial accounts have remained fairly steady. The city of White Hall, a suburb of Pine Bluff, is experiencing residential growth, benefiting the city through its long-term contract to treat its sewage as a wholesale customer. The city unemployment rate estimate at 11.5% as of July 2012 was above county (10.1%), state (7.8%) and national (8.6%) levels, though rates have historically been high, averaging 9.4% over the 2002 to 2011 period.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June. 12, 2012;
--'Water and Sewer Revenue Bond Rating Criteria', dated Aug. 3, 2012;
--'2012 Water and Sewer Medians', dated Dec. 8, 2011;
--'2012 Outlook: Water and Sewer Sector', dated Dec. 8, 2011.
Applicable Criteria and Related Research:
2012 Outlook: Water and Sewer Sector
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2012 Water and Sewer Medians
Teri Wenck, CPA, +1-512-215-3742
111 Congress Avenue, Suite 2010
Austin, TX 78701
Andrew DeStefano, +1-212-908-0284
Doug Scott, +1-512-215-3725
Elizabeth Fogerty, +1-212-908-0526