OREANDA-NEWS. Fitch Ratings assigns the following initial rating for Trinity River Authority, Texas' (TRA or authority) bonds:

--Approximately \$87 million Tarrant County Water Project revenue refunding bonds series 2015 'AA'.

The bonds are scheduled to sell via negotiation the week of March 23. Bond proceeds will be used to refund certain outstanding bonds for interest savings, and pay costs of issuance.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a first lien on and pledge of net revenues of the authority under water sales contracts entered into with the cities of Bedford, Euless, Colleyville, Grapevine, and North Richland Hills (member cities).

KEY RATING DRIVERS

TAKE OR PAY CONTRACT PROVISIONS: The authority's contract provisions with the five member cities constitute an unconditional joint and several obligation among the member cities for the payment of the Tarrant County Water Project (the project) expenses, including debt service on the bonds.

STRONG PARTICIPANT CREDIT PROFILES: The member cities account for all project revenues and have credit profiles that are consistent with at least the 'AA' rating category.

RESERVES PROVIDE OPERATING FLEXIBILITY: While member cities' payments are designed to recover TRA's project costs by just 1.0x, the project maintains certain reserves and cash balances that provide some cushion to timely recalculate member's annual payments for the year. Reserves are enhanced by TRA's monthly collection of debt service effectively six months ahead of scheduled payments.

ESSENTIAL SERVICE: The system serves an essential purpose within a diverse service area that benefits from the broader Dallas-Fort Worth metroplex. The member cities have limited access to other water supplies.

MODERATE DEBT; MANAGEABLE CAPITAL: Debt levels for the project are moderate and despite planned debt issuance are projected to decline due to a modest capital plan and above-average amortization of existing debt.

RATING SENSITIVITIES

MEMBER CREDIT PROFILES: Any change in credit quality of one of the member cities could have credit implications for the rating.

CREDIT PROFILE

Created in 1955 by the Texas Legislature as a conservation and reclamation district within the state, the authority has broad powers to construct, own, and operate water and wastewater treatment, collection, and transportation systems, including owning and operating projects such as the Tarrant County Water Project. The project provides drinking water to an estimated 244,000 population in the cities of Bedford, Colleyville, Euless, and portions of Grapevine and North Richland Hills. The treatment plant has been expanded to its present configuration of 87.0 MGD, currently providing ample capacity for future growth.

SOUND CONTRACT PROVISIONS

Member cities are unconditionally required to pay a proportionate share of the project's annual requirement (AR), which consists of project O&M expenses, debt service, and any amount required under the contracts and bond resolutions, including replenishment of any draws on the debt service reserve fund. The AR is based on estimated treated water requirement for such year by each customer relative to all water requirements from the project. The obligation of each city to make its annual payments (APs) to the authority is an O&M expense of each city's combined water and sewer enterprise system and is superior in priority to the city's own enterprise debt obligations. Payment of debt service is still required in the unlikely event that water delivery is disrupted.

While the contracts between the authority and the cities do not contain explicit step-up provisions in the event of a default by a city in paying its AP, the contracts appear to allow for a recalculation of the proportionate water requirements of the non-defaulting cities in order for the authority to eventually recover the full AP. However, no city has ever failed to make timely payments to the authority as required under their respective contracts.

SOLID MEMBER CREDIT PROFILES

Of the cities served by the project, Fitch only rates the water and wastewater revenue bonds of Colleyville (rated 'AAA' with a Stable Outlook). Fitch does not rate the water and sewer enterprise systems of Bedford, Euless, Grapevine, and North Richland Hills. Combined, these cities accounted for around 78% of the system's total customer payments in fiscal 2013. Fitch assessed the credit profile of each of these individual cities water and sewer enterprise systems to be very strong, consistent with the 'AA' rating category.

To determine the rating on the authority's project bonds, Fitch considered the strong credit characteristics of each of the member utility systems.

PROJECT RESERVES PROVIDE LIMITED CUSHION

The project maintains limited internal financial flexibility, which serves to offset customer payment risk in the short term. The project fund had nearly 3 months' worth of operating expenses in unrestricted cash at fiscal year-end 2013, a cash-funded debt service reserve fund, and half of the following year's debt service requirements accumulated in the interest and sinking fund provided by the authority's practice of collecting debt service in advance. These additional funds provide the authority some cushion in the event that member city delinquencies occur and APs must be recalculated for performing cities.

FAVORABLE DEBT PROFILE

The project's debt profile is moderate at \$581 per capita. Moreover, the project's five year capital improvement plan (CIP) totaling an estimated \$42.4 million through fiscal 2020 is considered very manageable. The CIP is focused primarily on rehab and technology improvements. While the CIP is expected to be entirely debt funded, the debt burden is projected to decline over the next five years due to the rapid amortization of existing debt. The resulting cost of treated water to member cities is projected to rise by about 5% annually through the next five years, which is relatively minimal compared with rising cost of water in other areas of the state and nation.