OREANDA-NEWS. June 30, 2015. Fitch Ratings has affirmed the 'A+' rating on the following Fort Pierce Utilities Authority, FL (FPUA, or the authority) bonds:

--\\$59.574 million utilities revenue bonds, series 1999A, 1998B and 2009.

The Rating Outlook is Stable

SECURITY

The bonds are secured by a first lien on net revenues of FPUA's combined utility system.

KEY RATING DRIVERS

COMBINED UTILITY SYSTEM: FPUA provides retail electric, water, wastewater and gas service to the city of Fort Pierce and neighboring areas of the city. The electric system accounts for approximately two-thirds of utility revenue.

RELIABLE POWER SUPPLY: FPUA is among the largest participants in Florida Municipal Power Agency's (FMPA) All-Requirements Power Supply Project (ARP, rated 'A+' with a Stable Outlook by Fitch) and St. Lucie Project (rated 'A' with a Stable Outlook). Both projects provide FPUA with a reliable long-term power supply sufficient to meet future load growth.

CHALLENGING ECONOMIC AND DEMOGRAPHIC INDICATORS: The combined system's customer base is fairly diverse with no meaningful concentration among users, but employment and wealth indicators for the city are notably weak and could challenge the authority's ability to enact future rate increases.

SOUND FINANCIAL METRICS: The authority's financial performance remains consistently strong, with debt service coverage (DSC) averaging a robust 2.51x over the prior five years and coverage of full obligations, including an annual transfer made to the city of Ft. Pierce, averaging 1.43x. Fitch's 2014 median ratios for the 'A+' rating category are 2.39x and 1.37x, respectively.

AFFORDABILITY OF RATES: Electric rates that currently rank below the statewide averages offer a degree of flexibility. However, rates for the water and sewer systems, which account for approximately 27% of the authority's gross revenues, are high relative to income levels for the service area. The affordability of the authority's rates remains a credit concern for Fitch.

LIMITED CAPITAL NEEDS: Existing water and wastewater treatment capacity is adequate for the foreseeable future, and planned capital spending through fiscal 2019 appears manageable at nearly \\$73 million. No additional borrowings are planned, which should improve FPUA's already favorable leverage ratios.

RATING SENSITIVITIES

RATE AFFORDABILITY: Sustained improvement in affordability of the services offered by the Fort Pierce Utilities Authority, whether through reductions in operating costs or improvement in service territory income metrics, could warrant consideration for positive rating action. Conversely, weaker performance driven by economic challenges to necessary rate increases would result in downward rating pressure.

CREDIT SUMMARY
FPUA's electric system serves nearly 28,100 customers and generates roughly 67% of the authority's combined revenue, making it the largest of the four systems. Water and wastewater operations serve approximately 19,750 and 15,000 customers, respectively, and typically account for about 27% of combined revenue. The authority's gas system is small, serving just 4,223 accounts and contributing on average about 5% of the authority's annual income.

Residential customers accounted for a healthy 41% of electric sales and revenue in fiscal 2014, and the water and wastewater systems exhibited a comparable mix. The authority's 10 largest customers accounted for about 20% of the respective income of each individual system in fiscal 2014 providing reasonable diversity. The ten largest customers are a stable mix of government, higher education and healthcare employers.

Both the city's per capita and median household income levels remain exceptionally weak, equal to slightly less than two-thirds of the state and national figures. For the period 2009-2013, the poverty rate averaged 35.7%, more than twice the state rate. Unemployment has moderated since peaking in 2011, but remains high and seasonal. While the unemployment rate for March 2015 was reportedly 7.7% (vs. 5.6% for the state), the seasonal rate was as high as 14.4% in August 2014.

SOLID FINANCIAL PERFORMANCE
FPUA continues to generate strong financial metrics with little change in financial performance over the last several years. Fitch-calculated DSC of 2.57x in fiscal 2014 remains consistent with levels reported in 2010-2013. Coverage of full obligations was 1.44x in 2014 and also in line with historical levels. FPUA makes a modest annual transfer to the city's general fund that averaged 5% of gross revenues over the prior five years.

Strong annual net operating margins have allowed for the steady build-up of reserves over the last few years, prompting unrestricted cash to almost triple since fiscal 2009. Consequently, the authority ended fiscal 2014 with a healthy 144 days cash on hand, slightly above Fitch's rating category median of 141 days and well in excess of a requirement under the bond resolution to maintain a minimum cash balance of 45 days cash on hand.

STABLE FINANCIAL FORECAST
DSC is forecast to remain well in excess of 2.0x and projected cash balances are expected to decline to a still acceptable 90 days as capital projects continue to be funded solely from existing reserves. Rates for three of the systems are expected to remain unchanged through the forecast, whereas annual increases for the water system are limited to an average of 2.7%. Electric rates are reasonably priced relative to the statewide average, but the affordability of utility rates remains a concern for Fitch.

Planned expenditures for capital projects through fiscal 2019 are in line with historical spending and will be funded from excess operating cash flow and existing reserves. FPUA's five-year capital program is estimated at \\$73 million.

The authority does not have any additional borrowing plans for at least the next five years, which should improve the utility's already favorable debt profile. Leverage ratios, including Debt/Funds available for debt service (3.8x) and equity/capitalization (66.7%) in fiscal 2014 were moderately stronger compared to respective rating category medians of 5.0x and 62.0%.

All of FPUA's outstanding debt is fixed rate, and the authority is not party to any derivative agreements. Annual debt service is level at approximately \\$9.4 million through fiscal 2016 before declining to an annual average of about \\$7.6 million through fiscal 2029, the final maturity of outstanding bonds.