OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following Water Authority of Western Nassau County, NY (the authority) revenue bonds:

--Approximately \$54.7 million water system revenue bonds, series 2015A;
--Approximately \$20.7 million water system revenue refunding bonds, series 2015B.

The authority expects to sell the bonds in a negotiated sale on April 14. Series 2015A bond proceeds will fund the authority's ongoing capital program, partially fund the debt service reserve and pay a portion of issuance costs. Series 2015B bonds will refund outstanding parity bonds (series 2005) for level interest savings.

In addition, Fitch affirms the following rating:

--\$64.5 million in outstanding water system revenue bonds, series 2005, 2010A and 2010B at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien on net revenues of the water authority.

KEY RATING DRIVERS

SATISFACTORY FINANCIAL PROFILE: Affordable water rates provide ample flexibility to sufficiently offset the authority's somewhat below-average financial metrics. The authority's demonstrated ability and willingness to raise rates has provided stability and consistency to operating results

MANAGEABLE CAPITAL PROGRAM: Capital needs through the current forecast period ending in 2020 appear manageable, limited to general maintenance and repair projects that will be fully funded from the current offering (series 2015A).

HIGH DEBT LEVELS: Leverage ratios are somewhat high for the rating category and will escalate further with the current borrowing. However, no additional debt plans are currently forecast, which should allow the authority's debt profile to moderate over time. Financial projections through fiscal 2020 incorporate needed rate increases to service the additional debt and maintain financial metrics at acceptable levels.

AMPLE SUPPLY AND TREATMENT CAPACITY: The authority possesses an abundant source of high-quality water that requires minimal treatment and cost to produce.

STABLE SERVICE AREA: The customer base is highly diverse in terms of water sales and related revenues. In addition, the service territory is very stable and benefits economically from its proximity to New York City. Utility revenue collection is consistently at or close to 100%.

RATING SENSITIVITIES

DEVIATION FROM CURRENT FORECAST: Weaker than currently forecast financial results would likely lead to negative rating consideration given the now heightened debt profile.

CREDIT PROFILE

STABLE SERVICE AREA WITH AMPLE CAPACITY
The authority provides water treatment and supply to a population estimated at 120,000, equal to slightly less than 10% of the county's total population (Fitch rates the county's general obligation bonds 'A' with a Stable Outlook). Of the more than 28,000 customer accounts, approximately 94% are residential with the balance being either commercial or fire protection. The authority's highly diverse customer base lacks any customer concentration, and officials do not anticipate any meaningful growth going forward given the built-out nature of the towns being served. The 10 largest customers accounted for just 5.2% of total revenue in fiscal 2014, evidencing the solid diversity of customers and revenues.

The Lloyd, Magothy and Upper Glacial aquifers provide the authority with a high-quality water supply that requires minimal treatment. Storage facilities along with existing well fields provide ample pumping capacity (46 million gallons per day [mgd]) in relation to actual demand (9.5 mgd). The water system is compliant with all applicable permits and regulatory standards.

SATISFACTORY FINANCIAL PROFILE WITH SUFFICIENT FLEXIBILITY
Financial results are typically weak relative to median ratios for the rating category but are sound relative to the utility's overall risk profile. Debt service coverage is consistently at or close to 1.3x each year, about in line with management's targeted coverage level of 1.35x. Unrestricted cash has steadily grown in recent years to a healthier level, exceeding \$4 million and providing nearly 200 days of cash on hand. Fitch believes the somewhat weaker metrics are largely offset by the authority's low water rates and very stable and mostly affluent service territory.

Financial projections are based on reasonable assumptions and should be easily achievable. Projected results assume no growth in consumption or the number of customers served. The forecast also incorporates sizeable rate hikes of 10% and 12.6% over the next two years, respectively, as well as annual capital spending that will be funded entirely from bond proceeds, which should help preserve liquidity throughout the forecast period.

Water rates are very affordable compared to income levels for the service territory. The average monthly residential bill totals slightly less than \$34, equal to just 0.4% of the county's median household income figure. Despite the steeper rate hikes proposed for fiscals 2016 and 2017, Fitch expects user charges will remain relatively affordable, which should continue providing the authority will sufficient flexibility needed to offset its high fixed cost obligations.

LEVERAGE WILL REMAIN HIGH
Capital needs appear manageable, despite a modest increase in planned spending relative to more recent years. The vast majority of planned capital spending will be comprised of general upgrades and improvements to well stations and the development and construction of two treatment facilities treating four wells. The balance of the capital spending through fiscal 2020 will address renewal and replacement of transmission and distribution lines as well as the implementation of an automatic meter reading system.

The series 2015A bonds will fund the entirety of the authority's capital program, similar to 2010 when a \$40 million bond issue was used to fund total capital project costs over the ensuing five-year period. Debt levels are slightly elevated for the rating category and will increase significantly with the new money portion of the current borrowings. However, authority officials believe longer-term capital costs, based on a 10-year forecast, will decrease significantly after the current five-year planning period and will likely be funded in part from excess cash flow. While the sharp increase in debt following the proposed issuance is a concern, Fitch expects leverage ratios will again moderate to somewhat of a more acceptable level over the current forecast period.