OREANDA-NEWS. Fitch Ratings affirms the following revenue bonds issued by the city of Arvada, CO (the city) at 'AAA':

--\$11.9 million water enterprise revenue refunding bonds, series 2009.

The Rating Outlook is Stable

SECURITY

The bonds are secured and payable from a first lien on the net revenues of the city's water system (the system). Pledged revenues include tap fees.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Aided by a strong rebound in impact fee revenue, the system continues to post strong financial metrics. All-in debt service coverage (DSC) finished fiscal 2013 at an exceptionally high 6.5x.

LOW DEBT LEVELS: Debt per customer is very low. Quick amortization and cash-funding of capital should lead to further near-term improvements to the system's debt profile.

VOLATILE RATE REVENUE: Due to the primarily usage-based rate charged to the city's water customers, revenues can be volatile in times of abnormal weather patterns.

PROACTIVE MANAGEMENT: Management has been proactive in capital planning. Funds for a large capital project are being set aside in advance of the expected project start date.

HEALTHY LOCAL ECONOMY: The city's local economy is favorable, characterized by strong median household income (MHI) levels and low unemployment.

RATING SENSITIVITIES
MAINTENANCE OF FINANCIAL METRICS: Failure to maintain financial and debt metrics consistent with Fitch's 'AAA' medians could put downward pressure on the rating. The Stable Outlook reflects Fitch's view that such pressure is unlikely to occur.

CREDIT PROFILE
Located approximately 20 miles northwest of Denver, the system serves a population of approximately 111,700 within the city as well as certain outlying areas through three wholesale contracts. Raw water is derived from two sources: the Denver Board of Water Commissioners' Ralston Reservoir through a perpetual contract and water rights in both Ralston and Clear Creeks.

EXEMPLARY FINANCIAL PROFILE
After experiencing some weakening in fiscal 2009, DSC has since rebounded to levels well in excess of Fitch's 'AAA' median. DSC recovery was precipitated by a combination of more stable weather patterns, rate increases, and increased connection fees resulting from an improved local economy. Most recently, impact fees from new customer connections have led to all-in DSC above 6.0x in both fiscal 2013 and unaudited fiscal 2014. These DSC levels compare very favorably to Fitch's 'AAA' median of 2.8x for all-in DSC. Liquidity has remained exceptionally strong in each of the past five years, with the number of days cash on hand averaging more than 1,500 days over this period.

Management's forecasts through fiscal 2019 point to DSC remaining high which is consistent with recent levels. Liquidity levels are expected to decline as the city anticipates funding its contribution to the Moffat Collection System Project (the Moffat project) primarily with cash. Even with this planned reduction, the system's liquidity levels are projected to remain well above Fitch's 'AAA' median.

VERY LOW DEBT WITH PAY-GO CAPITAL FUNDING
Total outstanding long-term debt per customer was a very low \$393 in fiscal 2013. As debt amortization is rapid and no significant new debt issues are planned over the next five years, debt should remain low.

Capital needs for fiscal years 2015-2019 total about \$62 million with the vast majority of expenditures relating to the system's participation in the Moffat project. The city's portion of the Moffat project costs are expected to total approximately \$39 million over the next five years and \$94 million overall. Prudently, management has begun setting aside money for its portion of the project costs; amounts currently allocated to this project and held in escrow total \$37 million.

Built in conjunction with Denver Water, the Moffat project primarily consists of an expansion to an existing reservoir. When complete, Arvada is expected to have rights to one-sixth of the additional yield produced by the Moffat project, or about 3,000 acre feet. The Moffat project is expected to begin in 2017 but still has some permitting and other administrative hurdles to pass. Although current supplies reportedly are sufficient to meet demands through mid-2030, completion of the Moffat project will meet management's longer-term supply goals.

The remaining five-year capital plan costs are allocated to mostly rehabilitation and repair projects. The majority of capital needs are expected to be funded from surplus revenues and existing cash balances although a small debt issue is also possible as part of financing of the Moffat project.

RATE STRUCTURE CREATES SOME REVENUE VOLATILITY
Approximately 90% of the system's operating revenues from water sales are derived from usage. Consistent with other systems heavily reliant on volume-based sales, operating revenues are sometimes volatile. For example, the loss of revenue associated with a wetter than average summer in fiscal 2009 contributed to weak DSC levels of just 1.3x. Nevertheless, customer bills are low both regionally and nationally, providing good rate flexibility, if needed.

STABLE LOCAL ECONOMY
Arvada benefits from its location within the Denver metropolitan area. MHI income is 117% of the Colorado average and 129% of the U.S. average. The city's unemployment rate has trended downward after spiking in 2010. The November 2014 rate of 3.8% was just below the Colorado rate (4%) and well below the U.S. rate (5.5%). Fitch believes that Arvada's economic prospects remain positive.