OREANDA-NEWS. Fitch Ratings has affirmed the 'AAA' rating on the following Central Utah Water Conservancy District, UT (the district) obligations:

--\$265.3 million outstanding LTGO bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are limited tax general obligations payable from ad valorem taxes to be levied annually, within legal limits, on all taxable property in the district.

KEY RATING DRIVERS

ESSENTIAL SERVICE; HEALTHY FINANCIAL PROFILE: The district has worked closely with federal and state governments to construct, operate, and manage the largest regional wholesale water system in Utah. General fund balances are sound and debt service coverage is consistently solid.

CHANGING REVENUE PROFILE: The district has historically relied heavily on property taxes for revenue and the tax rate is automatically adjusted to offset any taxable assessed value (TAV) decline. The district maintains independent control to levy an additional tax to support operations and/or debt service, though it has never done so. Water sales, governed by stable take-or-pay contracts, will comprise an increasing amount of revenues over the next several years.

MANAGEABLE DEBT PROFILE: The district has moderate debt levels and has reduced its exposure to variable rate debt. Amortization of principal is very slow due to the long-lived nature of the water development project assets.

RATING SENSITIVITIES

CONTINUED GOOD FINANCIAL PERFORMANCE: The Stable Outlook is based on Fitch's expectation of continued good financial performance given the shifting revenue profile.

CREDIT PROFILE
The district is the largest regional wholesale water supplier in Utah, serving a customer base of about 1.8 million, equal to approximately 61% of the state's population. The district encompasses all or part of eight counties, mostly in the central and eastern regions of the state, serving Salt Lake City and the surrounding area. The fiscal 2015 tax base is large at \$114 billion.

SOUND FINANCIAL PROFILE
The district ended fiscal 2014 with an unrestricted general fund balance of \$16.4 million, or 25.7% of spending. This represents a large increase from the prior five-year average of 11% of spending primarily due to a \$7.4 million increase in unassigned reserves. Tax revenues provided 72% of operating revenues in fiscal 2014, while water sales provided 27%. As the district ramps up sales from the Central Water Project (CWP), water sales will become a more prominent percentage of revenues and are expected to provide more than 40% of revenues in fiscal 2016 (when a full year of water sales from the CWP will occur).

The changing revenue mix is not expected to result in a change in credit quality, given the fact that water sale agreements are already in place for the CWP water and are take-or-pay in nature. The agreements provide revenues that cover district costs, regardless of whether or not the purchasers use their full allocation of the water.

Revenues have remained stable. The district has taxing authority to levy 0.0004 per dollar of TAV, and the rate is automatically adjusted annually by the state to offset TAV changes. In addition, the district has statutory authority under the Water Conservancy Act to levy up to an additional 0.0001 per dollar of TAV in anticipation of a budget shortfall and emergency debt-related expenses. In fiscal 2015, the levy would have generated approximately \$11.4 million, or about 25% of total annual GO and revenue debt service. However, the district has never assessed the additional levy, and does not anticipate doing so.

The district also applies motor vehicle license fee revenues, collected and disbursed by the state, to its GO debt service repayment. Based on the district's current projections from its property tax levy and motor vehicle license fee revenues, coverage net of operations and maintenance expenditures is expected to remain at about 1.6x. Coverage from net operations and including potential revenues from the additional 0.0001 levy would be approximately 2.0x.

SPONSOR FOR STATE WATER PROJECTS
The district operates three water treatment plants and serves as the principal sponsor of two water resource development projects: the \$3.5 billion federal Central Utah Project (CUP) and the CWP. As such, the district provides wholesale water to water conservancy districts, metropolitan water districts, and municipalities.

The CUP is a large, primarily federally funded, water project that has enabled Utah to beneficially use a substantial portion of its allotted share of Colorado River water. The district has a limited obligation to provide local matching funds to support the completion of a final component of the Bonneville Unit of the CUP, expected to be completed by 2021.

The district has prepaid \$315.9 million of its CUP obligation through GO limited tax bond issuances. An additional \$480 million in spending is expected, of which approximately \$312 are federal funds, more through the life of the project. The district has no plans to issue any additional GO limited tax bonds in the near term but does plan to issue additional water revenue bonds by 2017. The amount is unknown, but management expects it to be under \$100 million.

The other component of the district's capital plan is the \$350 million CWP, which consists of water development, conveyance, and treatment facilities that are separate from the CUP. The district estimates completion of the CWP by 2035. To date the district has spent \$290 million on CWP projects including \$108 million for water rights and \$182 for facilities.

MANAGEABLE DEBT PROFILE
Overall debt levels are low to moderate at \$1,071 per capita or 1.8% of TAV. Amortization is slow, with only 28% of principal retired within 10 years due to the nature of the 50-year repayment schedule with the federal government and long-term life of the project. The district has significantly reduced its exposure to variable-rate debt with recent debt issuances; variable rate debt comprises approximately 11% of total debt.

The district participates in the well-funded local government pension plan operated by the state. Its unfunded other post-employment benefit liability is \$4.9 million, and the plan was closed to new employees as of July 1, 1994. Debt service carrying costs are relatively high at 33.7% of noncapital governmental spending; however, this is due to the limited purpose nature of the district. Including the district's pension ARC and other post-employment benefits (OPEB) paygo contribution, these costs totaled 34.5% of fiscal 2012 noncapital governmental spending.