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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings takes the following action on Peace River/Manasota Regional Water Supply Authority, Florida:

--Approximately $165 million utility system revenue bonds affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a senior lien pledge of the net revenues of the authority. Revenues consist of all moneys derived from the Master Water Supply Contract, proceeds from any use and occupancy insurance on the system, investment earnings and other revenues, and federal direct payments received by the authority.

KEY RATING DRIVERS

LARGE REGIONAL SERVICE PROVIDER: The authority is an independent special district that provides wholesale water supply to four public utility systems via long-term contract. The four customers are located in southwest Florida: Charlotte County, Sarasota County, DeSoto County, and the city of North Port.

SOLID CONTRACTUAL PAYMENT OBLIGATION: Contract provisions are strong and include an irrevocable commitment to pay whether or not water is delivered (take-or-pay) once it is allocated. In addition, the payments are paid as an operating expense of each member's respective utility system, ahead of any debt service that system may have. While there is no step-up provision, when a member defaults, the water supply can be allocated to the other members.

STABLE FINANCIAL PERFORMANCE: Financial results of the authority have improved over the past few years and are considered solid for a wholesale system. Financial performance for member agencies is mixed, with some demonstrating very strong financial characteristics. Fitch notes that even the weakest performing systems show adequate financial performance.

MANAGEABLE DEBT BURDEN: Outstanding debt is an above average 60% of net plant, but just $334 per capita. Amortization of existing debt is slow with just 15% of outstanding principal retired over the next 10 years, and 53% retired over the next 20 years.

LIMITED CAPITAL NEEDS: The authority has completed its major regional expansion project with the completion of a 6.6 billion gallon reservoir and treatment plant expansion. Intermediate term needs are very manageable, which is expected to allow system leverage to decline over time.

CREDIT PROFILE

INDEPENDENT REGIONAL WHOLESALE WATER AGENCY

The authority is an independent special district and regional water supply authority created by an interlocal agreement in 1982 (and amended in 2005) to provide wholesale water to four member public agencies (the Counties of Charlotte, Sarasota, DeSoto and Manatee) and one non-member public agency (City of North Port). The authority does not currently provide water to Manatee County.

The authority transports, stores, distributes, and treats water primarily derived from the Peace River. Charlotte and Sarasota Counties together were allocated about 90% of authority water in fiscal 2011. The service area is large and diverse and includes approximately 500,000 residents.

SIGNIFICANT RECENT CAPITAL INVESTMENT HAS LED TO STRONG CAPACITY

Significant growth in the service area prior to the recession led to the authority doubling the treatment capacity at its water treatment plant to 48 mgd and construction of a 6.6 billion gallon reservoir as part of the regional expansion program that began in fiscal 2006. System capacity and water resources are ample. Customer demand in fiscal 2012 was approximately 24 million gallons per day, well below the plant's maximum treatment capabilities.

CREDIT COMFORT DERIVED FROM SOLID CONTRACT PROVISIONS

Water supply is provided under a Master Water Supply Contract adopted by the member agencies (and North Port) in 2005 concurrent with the amended interlocal agreement. The contract expires in 2040 with an option to renew for another 35 years, and cannot be terminated before the final maturity of the bonds.

The contract does not contain a step-up provision in case of a customer default; however Fitch believes the contract's take-or-pay provision, generally strong demand for water within the state, and the high costs and lengthy procurement process for obtaining, treating and delivering alternative sources provides significant and positive support for the rating. Contractual payments are paid monthly as an operating expense of the customer's utility system, which have demonstrated at least average credit characteristics on their own.

FINANCIAL PERFORMANCE HAS STABILIZED

Financial performance and debt service coverage declined in fiscals 2008 and 2009 resulting from lower demand due to the recession and drought conditions. However, stronger results were posted in fiscals 2010 and 2011. In fiscal 2011, debt service coverage was solid for a wholesale system at 1.6x, with similar results expected for fiscal 2012. The authority ended fiscal 2011 with over 300 days of cash on hand, providing a solid cushion for operations and roughly one full year of debt service in the event of a default by one of the customers.

Pro-forma financial results provided by the authority show a continuation of sound margins and cash flows. Debt service coverage is projected to be near budgetary targets of 1.5x annually. A modest five-year capital improvement program was approved as part of the authority's 2013 budget. Projects that were included in previous plans have either been completed or postponed until after 2017. The very manageable cash-funded capital plan should allow liquidity to remain adequate.

DEBT IS MANAGEABLE, RATIOS ARE SOMEWHAT MIXED

The authority has approximately $165 million in total bonds outstanding. Debt per capita (using the estimated 500,000 population) is very favorable at roughly $330, but debt is more than 60% of net plant and 10.0x FADS (funds available for debt service). However, with no additional debt expected over the intermediate term, debt ratios should decline.

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 U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 12, 2012);

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 3, 2012);

--'2012 Water and Sewer Medians' (Dec. 8, 2011);

--'2012 Sector Outlook: Water and Sewer' (Dec. 8, 2011).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015 ]

U.S. Water and Sewer Revenue Bond Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684901 ]

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 ]

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