Fitch Affirms Tamarac, FL's Utility System Revs at 'AA'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings affirms its 'AA' rating on the following bonds issued by Tamarac, FL:

-- $12.8 million utility system revenue refunding bonds, series 2009.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from net utility system revenues.

KEY RATING DRIVERS

CONTINUED IMPROVED FINANCIAL MARGINS: The system's low debt service carrying costs continue to result in strong all-in debt service coverage (DSC). Liquidity continues to grow, finishing fiscal 2014 at the operational equivalent of 548 days cash. The city intends to spend down cash on capital but liquidity is expected to remain healthy.

LOW DEBT BURDEN: The utility system's debt burden is low compared to similarly-rated systems, although fixed costs related to wastewater treatment are paid through the agreement with the county. With $12.8 million in outstanding bonds, debt is just 24% of net plant and approximately $327 per customer. Amortization is still relatively slow with final maturity in 2039.

MANAGEABLE CAPITAL NEEDS: Capital needs include a combination of system renewal and maintenance projects. Overall, the capital improvement plan (CIP) is manageable. The city is considering the use of additional debt to fund a portion of its capital needs but much of the renewal and maintenance will be funded from ongoing revenues and reserves.

LIMITED ECONOMY: The city's local economy is limited, as it functions predominately as a residential community with modest economic development opportunities. While the city's unemployment rate has shown recent signs of significant improvement, income levels have historically compared unfavorably to state and national averages.

RATING SENSITIVITIES

STABILITY EXPECTED: Potential weakening of the system's liquidity position, as unrestricted cash is expected to be drawn to fund capital spending, should be offset by many of the system's other strong credit metrics, including its strong free cash flow (FCF) and low debt profile. Therefore, rating stability is expected going forward.

CREDIT PROFILE

With an approximate population of 63,000, the city of Tamarac (GO bonds rated 'AA' by Fitch) is located in northwest Broward County (GO bonds rated 'AAA'). The city was created as a retirement community and remains primarily residential despite recent diversification. The city provides water and sewer service to approximately 19,300 and 18,800 customers, respectively.

FINANCIAL PROFILE IS STRONG

DSC metrics have improved in the past few years, as anticipated when the city adopted a rate ordinance in 2011 that adjusted rates by the higher of U.S. CPI water and sewer maintenance index or 5.25% during the years 2012 through 2020. As a result, all-in DSC has since rebounded to an exceptionally strong 9.0x in fiscal 2014 and has remained above 5.0x since 2012. The increased revenues have improved FCF to depreciation above 100% since 2012, providing revenues for capital reinvestment. Also improved in fiscal 2014 were the system's operating margins which, as noted by Fitch in its last review, had been somewhat weak.

As with the system's other financial metrics, liquidity has also improved. Unrestricted cash at the end of fiscal 2014 was $25.3 million. However, going forward, management anticipates spending some of its unrestricted cash as it plans mostly pay-as-you-go financing for its capital needs.

CAPITAL NEEDS & DEBT ARE MANAGEABLE

The system's capital improvement plan (CIP) totals a manageable $31.5 million over the next five years. The focus of the CIP is on repair and replacement projects, all of which are anticipated to be funded with surplus system revenues. At approximately $13.6 million through 2019, the largest of such projects is meant to address infiltration and inflow, which in turn is expected to reduce treatment charges assessed by Broward County. The city is evaluating whether to finance a portion of these costs with debt. Additionally, outside of the five-year CIP window, the city anticipates potential future wastewater treatment capital needs at the county level, for which it would be responsible for an allocable share.

At $327, debt per customer is currently very low and should allow for some moderate debt-financing of capital if the city chooses this route. Debt amortization, however, is slow with principal payout at 27% and 70% in 10 and 20 years, respectively. Given the low debt profile of the system, it is well positioned to take on any new debt associated with the county's wastewater treatment plant.

ADEQUATE SUPPLY POSITION

The city is allocated 7.6 millions of gallons per day (mgd) through a consumptive use permit with the South Florida Water Management District. The city's water treatment plant currently treats average daily flows of about 5.7 mgd and has a design capacity of 20 mgd and a permitted capacity of 16 mgd, providing ample treatment capacity. The city projects supply to be sufficient for the next 20 years.

On the sewer side, the city currently reserves 8.4 mgd of treatment capacity at Broward County's North Regional Wastewater Treatment Plant and has additional capacity from Fort Lauderdale's facilities. Capacity is sufficient to treat the city's flows and the county has indicated to the city that it would be able to purchase more capacity if needed.

LIMITED BUT IMPROVED LOCAL ECONOMY

The city's demographics continue to shift to a younger population, although the average age is still above the U.S. median. The city's median age has decreased from 65 in 1990 to its current level of about 45. While the city remains primarily residential, recent economic developments have begun to diversify the tax base. In addition, the area benefits from its proximity to the Fort Lauderdale/Miami employment centers.

Tamarac's unemployment rate (5.4% as of January 2015) has continued to improve and is now lower than that of the state's (5.8%) and nation's (6.1%). However, wealth indicators for the city compare unfavorably to state and national averages; the city's median household income as of 2013 equaled 91% of the state's and 80% of the nation's.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 2014);

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013);

--'2015 Water and Sewer Medians' (December 2014);

--'2015 Outlook: Water and Sewer Sector' (December 2014).

Applicable Criteria and Related Research:

2015 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818410

2015 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818409

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984527

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst:
Major Parkhurst, +1-512-215-3724
Director
Fitch Ratings, Inc.
111 Congress Avenue
Austin, TX 78701
or
Secondary Analyst:
Gabriella Gutierrez, +1-512-215-3731
Director
or
Committee Chairperson:
Kathy Masterson, +1-512-215-3730
Senior Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
[email protected]

Source: Fitch Ratings

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