Fitch Affirms Orem, UT’s Water and Storm Sewer Revs during ‘AA+’; Outlook Stable
July 19, 2016 - Essential Water
SAN FRANCISCO–(BUSINESS WIRE)–
Fitch Ratings has endorsed a ‘AA+’ rating on a following Orem, Utah (the city) debt:
–$5.2 million H2O and charge cesspool income bonds, array 2008.
The Rating Outlook is Stable.
The holds are cumulative by net H2O and charge cesspool revenues after remuneration of upkeep and operations expenses.
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: Financial opening has been clever with plain debt use coverage (DSC) and high liquidity confirmed opposite a accumulation of continue and mercantile conditions.
LOW DEBT BURDEN: Debt levels are low with fast amortization. The city has no skeleton to emanate additional H2O and stormwater holds over a subsequent 5 years.
HEALTHY SERVICE AREA: The Orem H2O and charge cesspool systems are corner providers of essential services to a suburban use area with healthy mercantile performance.
AMPLE WATER SUPPLIES: The H2O complement advantages from an ample, secure supply of H2O that requires singular diagnosis and allows a complement to offer low rates compared to other Utah H2O utilities and to sell over-abundance H2O to a adjacent town.
LOW TRANSITION RISK: The rating is supportive to shifts in elemental credit factors, utterly financial opening and rate-setting behavior. The Stable Outlook means that Fitch does not design such changes.
The ‘AA+’ rating reflects Orem’s ample, secure H2O supply, low rates, low debt, plain mercantile apparatus bottom and sound financial performance. The city, situated about 40 miles south of Salt Lake City, provides essential H2O and charge cesspool services to an economically volatile use area with a race of 94,457 people. The H2O system, that provides a bulk of a revenues affianced underneath a indenture, serves 22,634 business and is flourishing during light pace. The complement also sells H2O to a city of Vineyard by a long-term indiscriminate agreement that provides about 2% of H2O revenues.
STRONG FINANCIAL PERFORMANCE
Financial operations are sound though non-static due to a impact of continue on H2O sales. All-in DSC has averaged a really clever 3.4x over a 3 mercantile years finished Jun 30, 2015. Coverage dips in stormy years when outside watering direct declines and reached a new low of a still adequate 1.5x in 2010. Coverage was really clever during 3.8x in mercantile 2015.
The city expects DSC to sojourn during or circuitously 3x opposite a foresee horizon. The forecast, that conservatively assumes minimal direct expansion and responsibility expansion above inflation, appears reasonable. But a projected formula count on poignant rate increases to comment increasing investments in a city’s aging infrastructure. The City Council has concluded to a calendar to boost rates though has not nonetheless authorized a rates.
The city’s clever liquidity positions it good to withstand occasional weather-related misses in a forecast. Unrestricted money and investments rose to $12.7 million, or 484 days of handling expenses, during Jun 30, 2015.
SOLID RATE DISCIPLINE, ADEQUATE FLEXIBILITY REMAINING
The city’s H2O (about 75% of affianced handling revenues) and charge cesspool (25%) rate structures yield a reasonable grade of income fortitude and predictability. Pledged charge cesspool revenues are formed on prosaic fees per chateau or homogeneous use unit, while bound scale fees comment for about half of a normal residential H2O bill.
The city’s inaugurated policymakers have shown good rate discipline, and rate environment appears pretty uncontroversial. The city has done timely increases in H2O rates in new years with rates rising an normal of 4.4% annually from mercantile 2011 to 2016. Water rates sojourn low in comparison to other Utah communities and equal a assuage 0.4% of median domicile income (MHI) for 7,480 gallons or 10 hundred cubic feet (HCF) of water. Actual H2O use is most aloft than a inhabitant normal expenditure used in Fitch’s customary calculation in this dull region, though bills sojourn subsequent Fitch’s 1% of MHI affordability threshold even with normal use of 22 HCF.
Storm cesspool rates are practiced reduction frequently and equal usually 0.1% of MHI. The charge cesspool craving has singular operations, requiring few rate hikes timed around collateral needs, not a unchanging rate adjustments of a H2O enterprise. The city skeleton to lift charge cesspool fees to $8.60 per month from $6.25 per month for a standard home over a subsequent decade as it ramps adult collateral spending on a charge cesspool system.
MODEST DEBT BURDEN
Debt levels are low and expected to sojourn low over a subsequent 5 years. Long-term debt per capita is low during usually $220 (compared to an ‘AA’ median of $521 for rated H2O and cesspool utilities). Debt is also subsequent normal relations to a systems’ collateral batch during 37% of net plant assets. Amortization is fast with 75% of debt repaid in 10 years and 100% in 20 years. The city’s collateral skeleton are driven by upkeep of existent H2O infrastructure and expansions of a charge empty complement to urge government of runoff that flows from a city in to Utah Lake. The city now has no borrowing skeleton for a utilities over a subsequent 5 years.
AMPLE WATER SUPPLIES
Orem advantages from a sufficient H2O supply supposing by a multiple of spring, good and aspect H2O fed by a winter snows and open rains of a circuitously Uinta Mountains. The city owns a rights to open and good H2O that yield about 40% of a H2O during low cost with minimal treatment. The Metropolitan Water District of Orem (MWDO) owns a rights to storage and aspect H2O that reserve a remaining 60% of a city’s water.
Although a apart authorised entity from a city, a MWDO was combined to acquire, develop, store and sell H2O for a advantage of a city, and a organization’s house is allocated by a city. The city now has authorised desert to about twice a normal daily H2O needs and expects a stream reserve to be adequate by during slightest 2035. Orem’s aspect H2O is treated by a Central Utah Water Conservation District’s Central Utah Project during a Utah Valley Water Treatment Plant along with H2O for a adjacent city of Provo.
SOLID SERVICE AREA
Orem’s economy outperformed a inhabitant economy in new years. The city’s jobless rate was utterly low during 3.5% in May 2016. The informal economy is dominated by large, comparatively fast governmental, educational and medical employers, including a Brigham Young University in Provo and Utah Valley University in Orem. The city also advantages from tighten vicinity to a state’s biggest civil area in Salt Lake City. MHI is healthy during 106% of a inhabitant turn though usually 90% of a state level. The city is home to about 4,500 businesses, including a sell heart around a 180-store University Mall.
Additional information is accessible during ‘www.fitchratings.com‘.
In further to a sources of information identified in Fitch’s Revenue-Supported Rating Criteria, this movement was additionally sensitive by information from Lumesis.
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
U.S. Water and Sewer Revenue Bond Rating Criteria (pub. 03 Sep 2015)
Dodd-Frank Rating Information Disclosure Form