OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following Yuma Municipal Property Corporation, Arizona bonds issued on behalf of the city of Yuma, Arizona (the city):

--Approximately \\$92.43 million senior lien utility system revenue refunding bonds, series 2015.

The bonds will be sold via competitive bid within the next three weeks. Proceeds will be used to advance refund the senior lien utility system revenue bonds, series 2007 for debt service savings. A debt service reserve will not be funded.

The Rating Outlook is Stable.

SECURITY

The bonds are special, limited revenue obligations of the corporation, payable solely from purchase payments made by the city to the corporation. The purchase payments made by the city are payable solely from and secured by a senior lien pledge of the net revenues of the city's water and wastewater system (the system).

KEY RATING DRIVERS

WEAK COVERAGE, ROBUST LIQUIDITY: Debt service coverage (DSC) remains low at 1.4x and below average for the rating category. DSC without connection fee revenues is even lower at 1.1x and indicates the systems reliance on non-recurring revenues. However, the system's liquidity position remains strong at over 1 1/2 years of operating cash on hand, somewhat offsetting Fitch's concerns over the weaker DSC level.

ELEVATED DEBT BURDEN: Debt levels are somewhat high for the rating category but are generally offset by rapid amortization with a high 68% of the principal maturing in 10 years, well above the 'AAA' median level.

BENEFICIAL RATE STRUCTURE, FLEXIBILITY REMAINS: The system's rates are structured to provide a significant portion (77%) of the average residential bill from fixed water and sewer user charges. Proposed rate increases over the next five years increase the fixed base rate while tiering volumetric rates to encourage conservation; both-rate raising strategies are viewed as credit positives by Fitch. Also, rates retain a modest amount of flexibility, falling below Fitch's affordability threshold despite planned rate increases.

WEAK, CONCENTRATED ECONOMY: The area economy relies heavily on federal government and military employment. Unemployment, while down over past years, remains high due to the presence of seasonal agricultural workers. Wealth levels are below average, but have seen improvement over the last five years.

RATING SENSITIVITIES

MAINTENANCE OF STRONG CASH BALANCES: Given the system's dependence on non-recurring revenues to achieve adequate debt service coverage, maintenance of solid liquidity, along with at least 1.0x debt service coverage from recurring revenues are essential credit factors.

CREDIT PROFILE

The system is the primary municipal and industrial utility service provider in the area, serving approximately 28,000 and 24,000 water and sewer retail customers, respectively. The city's primary water source is the Colorado River, which is provided through allocations from the United States Bureau of Reclamation (USBR). The USBR allocation plus additional purchased water rights provide the city with 65,000 acre-feet of water a year, sufficient to meet demands for the foreseeable future. Water is treated at two city-owned treatment plants, which have ample room for potential growth. Wastewater is treated at three city-owned wastewater treatment plants, which also have a good deal of excess capacity.

BELOW-AVERAGE COVERAGE, STRONG CASH BALANCES
Following the series 2007 bond issuance, declines in coverage were largely expected with the increase in debt service costs. The system's fiscal 2013 and 2014 senior lien DSC registered a weak 1.5x-1.4x, including connection fee revenues and an even weaker 1.0x-1.1x without connection fees. Fitch's concern about the minimal margin of DSC from recurring revenues is somewhat offset by the system's robust and stable cash balances of over \\$32 million for fiscal 2014 or the equivalent of 586 days cash on hand (DCOH). Liquidity balances have remained very strong over the last five years, continuing to register at over 500 DCOH since 2010, exceeding Fitch's 'AAA' median of 481 DCOH.

MODEST, MULTI-YEAR RATE INCREASES ADOPTED
Management has demonstrated a history of raising rates to enhance financial performance, including passing significant double-digit rate hikes in fiscals 2007 and 2008 to support the series 2007 bonds. Additional 5% annual sewer increases were also enacted for fiscals 2009-2011. Following this trend, city council recently adopted a multi-year rate package of 2%-3% annual increases for both water and sewer services. The adopted rate increases are largely based on the recent 2014 rate study recommendations. The study recommended 2%-4% increases in the water base rate from 2015 to 2019, with slightly larger increases of 2%-8% on volumetric rates. The city's rate structure benefits from a significant fixed-rate component, with over 50% of the average monthly water user bill (based on approximately 7,500 gallons of water) coming from fixed charges and the entire sewer charge is a flat fee. Both the adoption of multi-year rates and the high fixed-rate component are viewed as credit positives by Fitch.

RATE FLEXIBILITY REMAINS
The city's combined monthly bill of \\$62 (7,500 gallon basis) is higher than many surrounding community peers, but still registers as affordable at 1.7% of median household income (MHI), falling just under Fitch's 2% MHI affordability threshold. Even taking into account future rate increases, combined rates do not surpass Fitch's threshold through fiscal 2019.

ELEVATED DEBT BURDEN BUT RAPID AMORTIZATION
The city's relatively recent expansion to its Agua Viva treatment plant increased the system's water treatment capacity by over 50%. The system's current five-year capital improvement plan (CIP) totals a manageable \\$57 million. A large portion of the plan is for renewal and replacement projects and the system will seek grant funding for non-essential projects that account for approximately \\$20 million of the plan. All of the CIP funding is derived from system operations.

As a result of the debt issued in 2007 to fund the expansion, the system's debt profile is elevated. The current offering fully refunds the system's outstanding series 2007 bonds for annual debt service savings of approximately \\$900,000, without any extension of maturities. The system benefits from rapid amortization of debt (100% of principal is retired in 20 years) and no additional borrowing is planned in the coming five years. The debt profile should improve, with projected debt per customer levels - year five of \\$1,802, falling below the 'AA' median of \\$2,049.

CONCENTRATED ECONOMY
Yuma is located in southwestern Arizona at the confluence of the Colorado and Gila Rivers. Established in 1854, the city serves as the county seat for Yuma County. The current population estimate is roughly 92,000, up more than 20% from 77,515 reported for the 2000 census. The principal economic activities in the city are agriculture, government, light industry and tourism.

The city has a concentrated federal government and military presence, which makes up approximately 10% of city employment. The area boasts two major military bases - the U.S. Marine Corps Air Station and the U.S. Army Yuma Proving Ground. The Marine Air Station was recently selected to support the Joint Striker Fighter. The city also houses offices of the U.S. Border Patrol and USBR.

The climate has fostered a significant agricultural base and attracts tourists from both the U.S. and Mexico. The agribusiness industry contributes \\$1 billion to the Yuma economy each year. Local unemployment rates historically have been exceptionally high, due in part to the large number of seasonal agricultural workers in the area. For June 2015, unemployment remains high at 22.8%, down slightly from the prior year's 23.7%. The city's wealth levels are 89% and 83% of the state and national averages, respectively, but have seen modest improvement in the last four years, growing by 6% since 2009. The city's individual poverty rate of 16.6% is more favorable than both the county (20.2%) and the state (17.9%) but slightly higher than the nation (15.4%).