Published: January 19, 2012
Fitch Rates Santa Fe, NM's $17MM Sub Lien GRT/Wastewater Sys Revs 'AA'; Outlook Stable
AUSTIN, Texas - (BUSINESS WIRE) - Fitch Ratings assigns an 'AA' rating to the following city of Santa Fe,
NM's (the city) revenue obligations:
--Approximately $16.5 million subordinate lien gross receipts
tax/wastewater system refunding revenue bonds, series 2012B.
The bonds are expected to sell via negotiation the week of Jan. 23,
2012. Proceeds will be used to refund the city's outstanding subordinate
lien gross receipts tax/wastewater system variable rate bonds, series
1997B to fixed rate bonds with no extension of maturity.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an irrevocable and subordinate lien on the
pledged tax revenues on parity with the lien on the city's parity tax
bonds (rated 'AA' by Fitch) but subordinate to the lien on the city's
superior tax obligations (rated 'AA+' by Fitch), and an irrevocable
first lien on the net wastewater system revenues. Pledged tax revenues
consist of state-shared gross receipts tax (GRT) revenues, one-half
percent GRTs, infrastructure GRTs, environmental services GRTs, and any
other GRT revenues received by the city and hereafter pledged to the
payment of the bonds.
KEY RATING DRIVERS
DOUBLE-BARRELL PLEDGE: The rating reflects the combined pledge of the
subordinate lien on the GRT revenues and net revenues of the wastewater
system. In practice, debt service is paid from net wastewater system
revenues and the city's environmental GRT revenues.
HEALTHY COVERAGE FROM SYSTEM REVENUES: Combined wastewater and
environmental GRT revenues produce coverage levels that are slightly
below, although adequate for the 'AA' rating category. Issuer
projections are reasonable and point to coverage levels that range
between 1.4 times (x) and 1.7x over the forecast period, including
budgeted transfers to the general fund. Additional bondholder coverage
is provided by the additional pledged GRT revenues.
PROMINENCE OF GRT: The full spectrum of pledged GRT revenues are
critical to general fund operations of the city and represent 81% of
general fund revenues.
AFFORDABLE SYSTEM RATES: Wastewater rates are very affordable at 0.5% of
median household income (MHI), offering the city ample rate raising
flexibility.
MODEST CAPITAL NEEDS AND LOW DEBT: Leverage ratios are below-average
when compared to comparably rated water and sewer credits. Given modest
system capital needs, the city's debt profile is projected to lower even
further over the next five years. In addition, amortization of system
debt is very rapid with principal payout at over 90% in 10 years.
MODERATELY WEAK LEGAL PROVISIONS: Legal covenants are moderately weak
and include a 1.1x rate covenant on all outstanding system obligations.
No debt service reserve fund is being funded for the series 2012B bonds.
CREDIT PROFILE
The wastewater system's historical financial performance over the fiscal
2007 to 2011 period has been good, with net wastewater system and
environmental GRT revenues consistently producing coverage of over 1.3x
in all five years. Unaudited fiscal 2011 coverage results point to
improved coverage of 1.9x on all outstanding parity obligations. City
projections indicate coverage levels will remain solid, ranging from
1.4x to 1.7x over the fiscal 2012 to 2016 forecast period, including
budgeted transfers to the general fund totaling $5.5 million over the
next few years that may be needed to support general fund operations, if
GRT revenues don't continue their recovery. System cash levels have been
very strong at well over 700 days cash over the past five years. In
spite of planned 100% pay-as-you-go funding of capital needs, liquidity
levels are expected to remain strong with cash reserves consistently
over a year's worth of operating expenses in all years through the
forecast period.
RATE AND TAXING FLEXIBILITY
Wastewater rates are approved by the City Council as part of the budget
process. Effective Jan. 1, 2010, the council approved an 80% increase
(30% volumetric charge increase) to the monthly bill. Rates were last
raised in Aug. 2007. At $38 (assuming average usage of 6,000 gallons per
month), individual wastewater rates are very affordable at 0.5% of MHI
and will remain so given that the city has no plans to raise its sewer
charges over the next five years.
Environmental GRTs accounted for approximately 14% of total wastewater
system revenues in fiscal 2010. Overall pledged GRT collections declined
by 8% and 5.4% in fiscal years 2009 and 2010, respectively. Unaudited
fiscal 2011 results indicate pledged GRT collections stabilized, growing
by 1.5%. The fiscal 2012 budget conservatively projects level GRT
collections, which Fitch views favorably. However, year to date total
GRT receipts for the first five months of fiscal 2012 have grown by 4%.
Additionally, officials report that GRT receipts in seven of the last
eight months have exceeded prior year collections during the same time
period, indicating a likely return to growth. Furthermore, the city
maintains some important revenue raising flexibility with the
availability of an additional 1/4% on the municipal GRT rate.
The city's economic base and future collections of pledged tax revenues
are directly affected by seasonal resort activities and tourism. But
based on the strong performance during the current economic recession,
Fitch believes there are prospects for sound future collections.
Nonetheless, GRT receipts could be affected by changes in state law
related to the items or rate at which GRTs are assessed.
FAVORABLE DEBT PROFILE
The system's five-year capital improvement plan (CIP) totals an
estimated $19.5 million. All needs are anticipated to be cash-funded.
The CIP is very manageable at roughly $110 average annual capital costs
per customer. Needs focus primarily on rehabilitation and repair.
System debt ratios are favorable relative to the category 'AA' rating
medians with debt per customer at approximately $700. Ratios are
forecast to decline further given the city has no additional system debt
issuance plans. Furthermore, debt amortization is very rapid with
principal payout at 91% and 100% in 10 and 20 years, respectively.
BELOW-AVERAGE LEGAL PROVISIONS
The city covenants to set rates in each fiscal year that ensure
wastewater system net operating revenues, together with environmental
GRTs are sufficient to yield the greater of 1.1x ADS coverage, or 1.0x
ADS coverage when including required fund deposits. Fitch notes that the
rate covenant, combined with no requirement to fund a debt service
reserve for the 2012B bonds is below-average compared to similarly-rated
credits.
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 Fitch's
Revenue-Supported Rating Criteria, this action was informed by
information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 20, 2011);
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 10, 2011);
--'2012 Water and Wastewater Medians' (Dec. 8, 2011);
--'2012 Outlook: Water and Sewer Sector' (Dec. 8, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647331
2012 Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657111
2012 Outlook: Water and Sewer Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657110
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
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Fitch Ratings
Primary Analyst
Julie G. Seebach
Director
+1-512-215-3740
Fitch,
Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary
Analyst
Jose Acosta
Senior Director
+1-512-215-3726
Committee
Chairperson
Kathy Masterson
Senior Director
+1-415-732-5622
or
Media
Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com
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