Fitch Rates Fairfax County Water Authority, Virginia's Rev Rfdg Bonds 'AAA'

Business Wire, March 2, 2005

WASHINGTON -- Fitch Ratings assigns an 'AAA' rating to the Fairfax County Water Authority's (FCWA) approximately $114 million water refunding revenue bonds, series 2005, consisting of $73.4 million subseries 2005A and $40.3 million subseries 2005B. The bonds, which are dated as of delivery, are scheduled for negotiated sale with Citigroup, as lead underwriter, on March 3. The bonds are secured by a net revenue pledge of the water system. Fitch also affirms the 'AAA' rating on FCWA's approximately $510 million of outstanding parity water revenue bonds. The Rating Outlook is Stable.

The 'AAA' rating reflects FCWA's exceptional financial flexibility, compliance with water quality regulations, ample water supply, sound long-term planning, and moderate debt levels with no additional borrowing planned. Debt service coverage is comfortably above targeted levels, which, in turn, exceed legal requirements that are relatively weak. Coverage from operating revenues alone is solid, and availability fees provide substantial funding for capital projects and allow FCWA to maintain low rates and an unusually high cash position, even for 'AAA' rated utilities. Water rates are the lowest in the Washington D.C. metropolitan area, and only moderate increases are projected.

The water system serves about 1.5 million customers in and around Fairfax County (general obligation bonds rated 'AAA' by Fitch) on both a retail and wholesale basis, with wholesale customers providing 27% of 2003 operating revenues. Raw water and treatment capacity are ample, and capacity needs for the rapidly growing wholesale customer base are funded by those customers over five- to 30-year terms. A December 2003 U.S. Supreme Court ruling surrounding Virginia water withdrawals from the Potomac was favorable to the commonwealth, reducing future Potomac supply risks for FCWA. Potomac withdrawals must still be coordinated with other area utilities and with the U.S. Army Corps of Engineers by regional compact.

Construction of the Frederick P. Griffith, Jr. Water Treatment Plant, with expected completion later this year (about 18 months later than initially projected), will replace three existing, less efficient facilities, and increase capacity to 120 million gallons per day (mgd) from 112 mgd. The general contractor has filed two claims against FCWA with respect to the Griffith plant, but FCWA does not expect they will materially affect financial operations. Both facilities are expandable; the Corbalis plant's capacity will increase by 75 mgd by 2008 and the Griffith plant can be expanded by 40 mgd in the future.

Debt service coverage from available revenues is strong at just under 2.2 times (x) for fiscal 2003, the last available audited numbers. Excluding availability fees and interest income, which together provided 37% of 2003 net revenues, coverage is still a solid 1.7x. Preliminary figures for fiscal 2004 show similar coverage levels at 2.0x, including all available revenues and about 1.6x times, excluding availability fees. Coverage through 2010 is projected to remain above FCWA's minimum target of 1.5x, using very conservative assumptions about customer growth and rate increases.

FCWA's capital program through 2014 totals $634 million. The sizable share of capital funding from existing and projected cash balances eliminates future borrowing plans. FCWA closed 2003 with cash reserves in excess of $280 million, equal to seven years of annual operating expenses.