Fitch Rates Fairfax County Water Authority, Virginia's $184MM 2007 Bonds 'AAA'

Business Wire, Feb 2, 2007

NEW YORK -- Fitch Ratings has assigned an 'AAA' rating to the Fairfax County Water Authority's (FCWA) approximately $184 million water revenue and refunding bonds, series 2007. The bonds, which are dated as of delivery, are scheduled for competitive sale on Feb. 13. The bonds are secured by a pledge of the system's net revenue. Public Financial Management, Inc. of Arlington, VA serves as FCWA's financial advisor. Concurrently, Fitch also affirms the 'AAA' rating on FCWA's approximately $490 million of outstanding parity water revenue bonds. The Rating Outlook is Stable.

The 'AAA' rating reflects FCWA's significant financial flexibility, compliance with water quality regulations, ample water supply, sound long-term planning, and moderate debt levels with limited future debt plans. While legal requirements are weak for the rating category, debt service coverage has remained comfortably above targeted levels. 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 1.3 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 36% of 2005 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. While a prior 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.

The recently completed Frederick P. Griffith, Jr. Water Treatment Plant, which treats water sourced from the Occoquan River, replaced three existing, less efficient facilities, and increased current capacity from 112 million gallons per day (mgd) to 120 mgd. Claims filed against FCWA in connection with this plant by the general contractor have been settled. Water sourced from the Potomac River is principally treated at FCWA's Corbalis plant, with a current capacity of 150mgd, is undergoing a significant capacity expansion which is expected to be completed in 2010. Both plants are expandable to accommodate anticipated growth across the region.

Debt service coverage from available revenues, inclusive of availability fees and interest income but net of a one-time accounting adjustment, is solid at 1.9 times (x) for fiscal 2005. Excluding non-operating revenues, coverage equals 1.5x. Preliminary figures for fiscal 2006 show coverage levels improving to 2.4x, inclusive of all available revenues, and approximately 1.9x times exclusive of non-operating revenues. On an overall basis, coverage through 2011 is projected to remain above FCWA's minimum target of 1.5x utilizing reasonable assumptions regarding customer growth and rate increases.

FCWA's capital program through 2016 totals $638 million. While most of the plan will be funded from current sources, FCWA expects to issue an additional $30 million in new money in 2011 to support the plan. FCWA closed 2005 with cash reserves in excess of $264 million, slightly in excess of policy guidelines which require maintenance of reserves equal to 6 months to 1 year of operating expenses and debt service.

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