OREANDA-NEWS. Fitch Ratings has affirmed its 'AA' rating on the following Northeast Maryland Waste Disposal Authority's (the authority) outstanding revenue bonds:

--\$56,970,000 solid waste refunding revenue bonds (Montgomery County Solid Waste Disposal System), series 2013.

The Rating Outlook is Stable.

SECURITY

The bonds are a limited obligation of the authority secured by a pledge of project revenues, the primary source of which is a waste disposal fee paid to the authority by Montgomery County (the county) and secured by a pledge of essentially all revenues derived from the operation of the county's solid waste disposal system. The waste disposal fee paid by the county is net of the authority's share of any revenues from the operations of the project. Additional security is derived from a cash-funded debt service reserve fund equal to \$7.7 million.

KEY RATING DRIVERS

USER FEE COLLECTED ON TAX BILL: A bulk of the system's revenues are derived from a benefit charge or user fee collected by the county on commercial and residential property tax bills throughout the county and enforced through property foreclosure.

SOUND FINANCIAL PERFORMANCE: Bonds are secured by substantially all revenues generated by the county's solid waste system, and both waste flow and net operational revenue performance have improved after a slight decline during the recessionary period.

RESERVE LEVELS ARE FAVORABLE: The system has maintained a solid level of operating reserves which have remained relatively stable the last five years.

STRONG ECONOMIC BASE: Montgomery County (general obligation bonds rated 'AAA' by Fitch) benefits from its above-average wealth levels, low unemployment, and a highly educated labor force. Anchoring the economy is the extensive presence of the U.S. government.

LOW TO MODERATE DEBT BURDEN: Management reports the system is in good physical condition and there are no significant capital needs or plans for additional debt leveraging. Recent landfill remediation requirements are manageable and are not expected to have a material effect on operations.

ADEQUATE BONDHOLDER PROTECTIONS: Rate covenant and additional bond provisions are lenient. However, these risks are mitigated in part by the short remaining life of the authority bonds, which are fully repaid by April 1, 2016.

RATING SENSITIVITIES

Fitch expects management will continue to manage revenues through adjustments to rates and charges as well as maintain adequate reserves to ensure sufficient resources to meet its financial obligations.

CREDIT PROFILE

The authority is an independent state agency consisting of eight participating political subdivisions located in central Maryland. The authority was organized in 1980 to assist in the development of waste management facilities to serve the region. In 1993 the authority and Montgomery County concurrently issued bonds to finance construction of an 1,800-ton-per-day resource recovery facility (RRF), among other related improvements. The authority owns the RRF, which it operates as part of the county's solid waste disposal system (the county system) pursuant to the terms of a waste disposal agreement with the county.

The county system provides for the collection, recycling, composting, transfer, mass burning, and landfilling of solid waste. The county has been providing solid waste collection and disposal services since 1943.

STRONG AND HIGHLY RATED ECONOMIC BASE

The solid waste disposal system service area is the entire Montgomery County. The county is a wealthy suburb of Washington DC, with a highly educated labor force and a broad and diverse economy with expansion potential. The region has a heavy concentration of government jobs and after four years of job growth, the county experienced a modest decline of 0.3% in 2014. Unemployment remains low at 4.1% in November 2014. Population is 1,016,677 (2013 estimate) and is up 16% from 2000 census figures.

PROPERTY TAX BILL CHARGES PROMOTE REVENUE STABILITY

A bulk of the county system revenues are collected as a system benefit charge, which is essentially a pre-paid tip fee collected on the property tax bill. Collection of delinquent accounts is enforced through foreclosure in the same manner as if the owner had failed to pay property taxes. System benefit charges are established by the county without any legal limitation and are calculated to reflect as closely as possible the actual costs, or allocated portion of costs, to the county of providing solid waste management services.

System benefit charges were \$214 annually in 2015 for a single-family residence in the unincorporated area of the county and have remained at this level since 2012. These charges have averaged 70% of total system revenues over the past five fiscal years. Approximately 372,000 residential units, including multi-family, located throughout the county are subject to a charge on their property tax bill for system services.

System benefit charges are set annually but may be adjusted more frequently. Due to the nature of the property tax bill cycle, mid-year adjustments would be cumbersome. However, the tip fee may be adjusted within 90 days of the county's decision to do so. Tip fees, which account for an average of 16% of remaining county system revenues, are also established by county ordinance without limitation as to rate or amount.

Tip fees are currently \$56 per ton, having last been increased by nearly 8% effective fiscal 2008 and 27% in total since fiscal 2003. Tip fees are managed to control capacity at the transfer station and RRF. Current tip fees are competitive with regional systems.

LANDFILL REMEDIATION COST RECORDED IN FISCAL 2014

A consent agreement entered into with the Maryland Department of the Environment to remediate the closed Gude Landfill site resulted in the recording of a \$28.5 million liability in fiscal 2014, in accordance with GASB 49. The recording of both the liability and expense for this pollution remediation project had no effect on the operating fund's cash balances. The county's future cash outflows for this project will occur over a 30-year period. This time period will allow the county's disposal fund to maintain adequate cash reserves and stable system benefit charges, mitigating Fitch concerns. According to management, the county plans to use current operating receipts to fund the remediation project.

SOUND FINANCIAL PERFORMANCE

The county system has historically produced coverage of operating expenses and combined debt service on the authority and previously outstanding county bonds at or close to 1x.
Coverage from net operating revenues improved in fiscal 2014, excluding the extraordinary landfill remediation expense, to 1.26x, up from 0.99x in fiscal 2013 and 1.07x in 2012. The improvement is largely due to the maturity of the county's debt in 2013 and an increase in waste flow due to an improving economy. System liquidity is considered sound, with \$62 million in available reserves at the close of fiscal 2014 (audited GAAP), or the equivalent of approximately 254 days adjusted operating expenses.

The rate covenant and additional bonds test (ABT) is based on a relatively low 1.10x coverage threshold. Further, both tests permit 25% of the revenue requirement to be satisfied from available fund balances. The fiscal 2014 debt service coverage ratio improves to 2.59x (excluding remediation liability expenses) when factoring in available fund balances equal to 25% of revenues required to cover operations plus debt service.

LIBERAL RATE COVENANT AND ABT MITIGATED BY LACK OF DEBT NEEDS

Fitch views these liberal legal provisions negatively, as they allow less than sum-sufficient coverage of debt service from system operations and may allow issuance of more debt than the system operations can comfortably cover. However, the stable nature of the revenue environment, lack of future issuance plans and the short remaining life of the outstanding bonds mitigate concern. The authority's outstanding series 2013 bonds mature April 1, 2016.

THIRD-PARTY CONTRACTS PERFORMING WELL

The county and the authority are party to various contracts related to the operation of the RRF, delivery of waste to the system, and land-filling of non-processable or bypassed waste. Third-party participants are performing as anticipated, according to management, and all but one of the operating contracts expires after final bond maturity. The contract for rail service with CSX for transport of waste to the RRF from the county transfer system expires Aug. 7, 2015. Management expects timely extension of the contract and no disruption in services, which Fitch believes is reasonable based on the historical performance of the system. The county also owns 650 acres of land near Dickerson, less than 2 miles from the RRF, of which 125 acres is permitted for the Site 2 landfill if out-of-county disposal becomes unavailable.