OREANDA-NEWS. Fitch Ratings assigns its 'AAA' rating to the following Lewisville, TX's (the city) waterworks and sewer system revenue bonds:

--$12.1 million waterworks and sewer system revenue refunding and improvement bonds, series 2015

The bonds are scheduled to sell on July 20. Proceeds will be used to refund certain outstanding obligations for debt service savings, and to finance improvements to the city's waterworks and sewer system.

In addition, Fitch affirms its ratings on the following outstanding waterworks and sewer system obligations (pre-refunding):

--$20.9 million outstanding revenue bonds, series 2006, 2008, 2009 and 2013 at 'AAA';
--$16.5 million outstanding revenue refunding and improvement bonds series 2005, 2011 and 2012 at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds represent senior lien obligations of the city's combined water and sewer system (the system).

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: Financial performance is very good, characterized by robust liquidity and solid debt service coverage (DSC). While DSC is somewhat lower than the 'AAA' median DSC, the system's manageable capital needs and rapid amortization of existing debt somewhat offset the DSC difference.

LOW DEBT, MANAGEABLE CAPITAL PLAN: Debt levels and capital needs are manageable, with limited growth pressures and moderate borrowing plans. System debt amortizes rapidly at nearly 90% in 10 years, compared with the 'AAA' median of 52%.

AFFORDABLE USER RATES: User rates are very affordable despite annual pass-through cost of service annual increases. Combined service rates at 1% of median household income (MHI) remain well below Fitch's affordability threshold of 2% of MHI.

AMPLE WATER SUPPLY: The city's water supply planning efforts provide alternate water supply sources in the event that the contract renewal with the city of Dallas does not materialize. Although Fitch recognizes that the city is exposed to contract renewal risk as its wholesale contract with the city of Dallas expires in 2016, the cities' memorandum of agreement regarding rate methodology that extends beyond the term of the contract (through 2039) is evidence of their respective commitment to renew.

STABLE, MATURE ECONOMY: The city is relatively mature, with a favorable economic profile characterized by above-average wealth levels and relatively low unemployment.

STRONG FINANCIAL PLANNING: Management has demonstrated extensive financial and capital planning.

RATING SENSITIVITIES

MAINTENANCE OF STRONG FINANCIAL POSITION: Continued strong financial performance commensurate with historical levels will be important to maintenance of the rating.

MEASURED DEBT ISSUANCE: Lewisville's latest debt issuance plans, which are up considerably from a few months ago, fall within Fitch's expectations for 'AAA' credits. Any further increases in the debt profile though could cause concern, without offsetting gains to the system's financial profile.

CREDIT PROFILE
The city provides water and wastewater services to approximately 101,000 residents of the city of Lewisville, which is located about 20 miles northwest of Dallas. About 90% developed, Lewisville is currently experiencing in-fill growth and is estimated to reach a population of 128,000 upon build-out, currently projected by around 2030.

CONSISTENTLY SOLID FINANCIAL PERFORMANCE
The system's financial profile is a key credit strength. DSC has ranged from 1.8x to 2.1x on an all-in basis over the last five fiscal years. While this coverage falls somewhat below the 'AAA' median, the system's debt amortizes at a much more rapid pace and growth pressures are limited, providing for a stable financial profile.

The recently-ended Texas drought resulted in stricter conservation efforts and accompanying reduced water sales in recent years. For fiscal 2014, water sales declined nearly 14% from the prior year. Despite the decline, the city produced 1.8x all-in DSC for fiscal 2014, better than the previously forecast 1.6x and only slightly lower than the 2.0x produced in fiscal 2013 as a result of a modest 1.5% base rate increase and a declining debt service schedule.

The system's five-year forecast reflects all-in DSC ranging from 1.5x to 1.8x for fiscal years 2015 and 2019. Management typically outperforms projections and Fitch expects all-in DSC will remain at historical levels. Liquidity remained very high, with 659 days cash on hand available for operations at the end of fiscal 2014. Fitch expects liquidity to remain solid despite some planned use of available reserves for capital improvement projects given the city's strong history of rate reviews and implementation of necessary increases.

RATE FLEXIBILITY
Rates are reviewed annually and the city continues to pass through cost increases associated with its purchased water contract with the city of Dallas. Despite annual rate increases, the city's combined water and sewer service rates remain competitive with the surrounding communities and comfortably below 2% of MHI at just 1.0% of MHI.

FAVORABLE LEVERAGE POSITION DESPITE PLANNED CAPITAL NEEDS
Fitch expects the system's leverage position to remain favorable despite significant recent revisions to the system's capital improvement plan (CIP) to $50 million from $9 million a few months ago. The system's fiscal 2015-2019 CIP was revised mainly to accelerate line replacement projects that will be completed in tandem with the recently approved general obligation-funded street projects. The city plans to debt finance about $40 million of the 2015-2019 CIP with the remainder funded on a pay-go basis.

Fitch believes that the CIP remains manageable despite the recent increase. Also, the system should be able to absorb the additional debt given that more than 50% (or $21 million) of existing debt amortizes over the next five years. The city's projected debt per customer by fiscal 2019 of $1,267 remains within the 'AAA' median of $1,341. Fitch views favorably the city's policy to amortize debt repayment over a maximum of 16 years.

WATER SUPPLY CONTRACT RENEWAL EXPECTED
The city purchases all of its treated and untreated water from the city of Dallas under a contract extending through 2016. While previously Fitch cited concerns regarding the contract expiration, the city of Dallas, as a regional water supply provider, has made significant investment in its water plans in order to continue to serve its 23 customer cities. Lewisville expects to renew its water supply contract with the city of Dallas and the cities have already entered into a new memorandum of agreement with regard to rate methodology that extends through 2039.

Additional water sources may be available to Lewisville from the Upper Trinity Regional Water District in which Lewisville is already a member city. Fitch takes comfort from the steps the city has taken to ensure long-term water supplies are available to continue to serve its customers and projected growth.

STABLE SERVICE AREA
The city's economy benefits from its location within the broad and diverse Dallas - Fort-Worth metroplex. Lewisville's MHI and per capita income compare favorably to the MSA, state, and national levels. The unemployment rate of 3.5% in March 2015 is also better than the unemployment rates reported for the MSA, state, and nation.