Fitch Affirms 'A-' Rtg on Pasadena, Texas' Water & Sewer Revs; Outlook Stable

Business Wire, Sept 21, 2007

AUSTIN, Texas -- Fitch Ratings has affirmed the following ratings on Pasadena (the city), Texas' outstanding water and sewer revenue bonds:

--$17.1 million water & sewer revenue bonds series 1998A at 'A-';

--$1.6 million water & sewer revenue bonds series 1998 at 'A-'.

The Rating Outlook is Stable.

The 'A-' rating reflects the system's stable service area, essentiality of service, and improved coverage level since its fiscal 2006 rate increase. The rating also incorporates the system's large but manageable capital improvement plan and competitive rate structure despite a recently implemented rate hike. However, despite the system's competitive rate position, untimely rate increases have strained the system's liquidity position, as well as its capital assets by deferring maintenance needs.

Absent a rate adjustment since fiscal 2001, debt service coverage declined falling below the 1 times (x) requirement in fiscal years 2003 and 2004, and cured by a subsequent revenue debt restructuring in fiscal 2005 and a service rate increase in fiscal 2006. Current debt levels are moderate, but are expected to rise in the next five years with the implementation of the system's $103 million five-year capital improvement program, which is planned to be funded entirely through debt.

Located in southeastern Texas along the Houston Ship Channel with a population of approximately 144,000 Pasadena is the largest suburb in the Houston metropolitan statistical area. The service area, while stable, is sensitive to economic cycles due to nondurable manufacturing concentration. The system provides service to about 35,700 water and 35,000 sewer connections. The system entered into a cost sharing agreement with the city of Houston for water supply acquiring rights to 15 million gallons per day (MGD) from the southeast water plant. Additionally ground water from the system's eight wells provides additional capacity of 10 million gallons per day. The system expects to participate with the city of Houston's expansion project to acquire additional water rights and reduce reliance on groundwater. Sewer service is provided via two wastewater treatment plants with a combined capacity of 24 MGD.

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