OREANDA-NEWS. Fitch Ratings affirms the 'A+' rating on the following Leesburg, FL bonds:

--\$21.8 million electric system revenue bonds, series 2007A and 2007B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a lien on and a pledge of net revenues derived by the city from the operation of its electric system.

KEY RATING DRIVERS

SMALL DISTRIBUTION SYSTEM: The city of Leesburg owns and operates a small retail electric distribution system (the system) serving a diverse, largely stable customer base located in the Orlando metro area. The city's economic profile remains fairly limited, dependent in large part on its proximity to Orlando. Weak income indicators persist.

SUFFICENT POWER SUPPLY: The system's participation in Florida Municipal Power Agency's (FMPA) All-Requirements Power Supply Project (rated 'A+'/Outlook Stable) and St. Lucie Project (rated 'A'/Outlook Stable) ensures the city a reliable power supply sufficient to meet future needs.

SOUND FINANCIAL METRICS: The utility's healthy cash flow metrics are viewed favorably, although Fitch notes that strong operating margins are generated in part to provide an above average level of financial support to the city's general fund via sizeable transfers. While debt service coverage consistently exceeds 4.0x, coverage of full obligations, including the transfer, is more modest at 1.4x. Nevertheless, available liquidity is robust, equal to roughly 200 days of cash on hand.

HIGH RATES LIMITS FLEXIBILITY: The city's retail electric rates rank among the highest in the state, despite FMPA's generally affordable wholesale rates. Further escalation, particularly as a means to continue supporting the city's general fund, would be viewed negatively.

LIMITED CAPITAL NEEDS: Capital needs through 2020 remain very manageable and should continue to be funded solely from excess cash flow. Leverage ratios will continue improving as a result, although current metrics already compare well to Fitch's medians.

RATING SENSITIVITIES

INCREASED GENERAL FUND SUPPORT: While not currently anticipated, increased support of the general fund at the expense of financial metrics and rate flexibility would likely pressure the current rating.

CREDIT SUMMARY

The city's electric utility serves a stable customer base located almost entirely within the city's geographical boundaries. Only a small number of end-users reside immediately outside of the city limits. The customer base is reliably diverse with residential customers accounting for approximately 47% of energy sales and nearly 49% total revenue in fiscal 2014.

FMPA PARTICIPANT
Substantially all of Leesburg's power supply demands, as well as scheduling, transmission, and associated services, are satisfied through the city's participation in FMPA's All Requirements Project. Leesburg and the balance of the 14 project participants are bound to the project by 30-year all-requirements power supply contracts that roll each year for one additional year, thereby keeping the length of the contracts at 30 years. Capacity available to the city through its participation in FMPA's St. Lucie Nuclear Project, is pledged to the ARP. In aggregate, the ARP's load is served by a fuel mix that is approximately 80% natural gas.

SIZEABLE TRANSFERS TEMPER SOUND FINANCIALS
The electric utility continues to generate strong operating margins, in part to maintain its higher than average support of the city's general fund. Debt service coverage, despite a declining sales environment, has remained strong, comfortably above 4.0x over the prior five years. Coverage of full obligations, despite a sizeable general fund transfer that accounted for nearly 11% of total revenues in fiscal 2013, mirrors the rating category median of 1.4x.

With available cash balances equal to roughly 200 days of operating expenses at the close of fiscal 2013, the utility's liquidity continues in excess of the median figure for the rating category. Annual transfers to the city's general fund are considered by Fitch to be high, but the city's ordinance limiting transfers to no more than 10% of budgeted operating revenues partially mitigates concern regarding further escalation.

The city's most recent financial projections show debt service coverage strengthening to over 6.0x for fiscal year-end 2014 while coverage inclusive of the annual transfer stays closer to 2.0x. Cash flow metrics included in the city's longer term, 10-year forecast exhibit little deviation. The forecast reasonably assumes no additional debt issuance, annual growth in customers served of about 2% on average, and energy sales growth of just below 2%. Rate increases averaging about 1.7% are incorporated into each year of the forecast; however, management has stated that a rate study will be conducted this year that will likely result in revised projections that exclude rate increases.

COSTLY RATES
Following multiple years of 5% base rate increase, the average monthly residential bill as of November 2014 (assuming usage of 1,000 kWH) now totals about \$138, roughly 16% and 10% higher than the statewide average for investor and municipally owned utilities. In 2013, the city council approved a series of 5% rate increases to take effect in fiscals 2014-2016; however, the city is currently considering foregoing the 2016 increase in an effort to grant ratepayers a degree of rate relief.

Leesburg currently pays a competitively priced average wholesale rate of slightly more than \$80/MWh. The city's rate structure includes a fixed customer charge as well as a bulk power cost adjustment (BPCA) that can be automatically implemented on a monthly basis to recover purchased power costs, which typically account for about 75% of total operating expenses.

DELEVERAGING EXPECTED TO CONTINUE
Debt levels compare favorably to median ratios for similarly rated retail systems, although the utility's limited role as a distribution only system somewhat limits the need for significant debt issuance. The ratio of debt to funds available for debt service (FADS) has remained well below 4.0x since fiscal 2007 while equity-to-capitalization continues in excess of 60%. Adjusted to reflect long-term purchased power obligations, the utility's debt profile more closely aligns with Fitch's 'A+' medians.

Capital needs through fiscal 2020 are manageable, estimated at \$21 million. No significant or growth related capital needs are expected. The majority of planned spending is aimed at improving and replacing existing assets. Leverage ratios are expected to continue improving given the city's plan to fund capex from existing resources through the current forecast period.

BELOW AVERAGE WEALTH LEVELS FURTHER LIMITS FLEXIBILITY
Leesburg is located in Lake County, approximately 40 miles northwest of Orlando. Fitch currently rates the city's implied general obligation 'AA-' with a Stable Outlook. The city's economic profile remains fairly limited, dependent in large part on its proximity to Orlando.

Employment levels exhibited strong growth over the prior year, reducing the city's November 2014 unemployment rate (5.8%) to a more tolerable level similar to state and national figures. Weak income levels remain a credit concern, particularly with electric rates being exceedingly high. The utility's write-offs and accounts receivable balance remain elevated as a consequence, equal to 1.1% and 9%, respectively, of total revenues in fiscal 2014. Further escalation on both fronts would be viewed negatively.