BRADENTON, Fla. - Fitch Ratings upgraded Tampa, Fla.'s water and sewer system revenue bonds to AAA from AA-plus noting the system's "very strong financial performance."
The upgrade affects $240 million in outstanding bonds. The rating outlook was revised to stable from positive in connection with the July 10 upgrade.
The triple-A rating reflects a moderating debt position, and the fact that the water and sewer system is capable of recovering the full cost of service, including capital spending needs and annual debt service, from existing rates, according to Fitch analyst Andrew DeStefano.
Financial management of the system remains "very strong" as evidenced by vastly improved financial margins and debt service coverage in each of the past four fiscal years, he said.
"The system's liquidity position continues to improve, providing significant financial flexibility," said DeStefano. "As of fiscal year-end 2013, the system's unrestricted cash and investments equated to 587 days of operations. Fitch expects healthy reserves will be maintained given the projected strong margins."
City officials said they were excited about the ratings boost.
"Year after year, together, we have worked hard to continue making strategic investments while balancing the budget," said Mayor Bob Buckhorn, "A ratings increase is a big deal and affirms the choices we've made."
Tampa's utility system provides potable, reclaimed, and wastewater services to a largely residential and retail customer base in the city and portions of surrounding Hillsborough County. The city had a population of 352,957 as of the 2013 Census estimate.
Fitch said the system's debt burden continues to improve and capital needs are manageable. The city makes annual transfers to the general fund from the utility. A rise in operating revenues and an increase in the transfer fee to 6% from 4.6% resulted in a $19.4 million transfer in fiscal 2013.
"The city anticipates funding the capital program entirely from internal sources over the next five years, which is feasible given the sizable [$40 million in] annual free cash flow," said DeStefano. "Debt carrying costs are low and existing debt amortizes rapidly."
The five-year capital plan totals $218 million and will address renewal and replacement projects such as upgrading and replacing transmission pipes, force mains and gravity sewer lines.
"Conservatively, the city has issued only a small amount of new debt over the past five years, opting instead to use a portion of its sizable annual financial margins to improve and upgrade the system," he said. "As a result, the debt profile is trending positive with most debt ratios comparing favorably to AAA-rated."
Tampa's water and sewer bonds are rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's.