OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to the following Washington Suburban Sanitary District, Maryland (the district) general obligation (GO) bonds:

--\\$250 million consolidated public improvement refunding bonds of 2015;
--\\$400 million consolidated public improvement bonds of 2015.

Bond proceeds of the refunding bonds will be used to refund certain bonds outstanding for debt service savings. The bonds will sell negotiated Sept. 22. Bond proceeds of the new money bonds will be used to fund various capital projects. The bonds will sell competitively the week of Sept. 29.

In addition, Fitch affirms the following ratings:

--approximately \\$2.1 billion district GO bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the district, payable from an unlimited ad valorem tax levied in Montgomery County and Prince George's County.

KEY RATING DRIVERS

UNLIMITED TAX PLEDGE: The 'AAA' rating primarily reflects the wealth and extraordinary diversity of Washington Suburban Sanitary District's bi-county tax base, Montgomery and Prince George's counties. While the Washington Suburban Sanitary Commission (WSSC), which oversees operations of the district, has no plans to utilize its taxing power, WSSC maintains the legal authority to levy an unlimited ad valorem tax to cover bond debt service, if necessary.

STRONG MANAGEMENT: District financial operations are closely managed to provide generally sum-sufficient coverage of debt service and operations. Despite narrow financial results, financial and capital planning practices are strong and available liquidity has remained at a healthy level relative to the utility's risk profile.

ESSENTIAL SERVICE: The district provides an essential service to a stable and affluent bi-county service area.

AFFORDABLE DEBT LEVELS, LARGE CIP: Fitch expects debt levels will grow significantly over the medium term but should remain manageable. The district's low user rates should provide sufficient flexibility to offset potential risks related to its sizeable capital needs.

RATING SENSITIVITIES

STRONG FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics of the counties it serves as well as the district's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

The district is a sanitary district providing water supply and sewage disposal services for Montgomery and Prince George's Counties, Maryland. The service area encompasses over 950 square miles effectively representing 95% of the land area of both counties and has a population of about 1.8 million.

UNLIMITED TAX PLEDGE SUPPORTED BY A WEALTHY TAX BASE

The utility district's ability to levy an unlimited ad valorem tax on the tax bases of Montgomery and Prince George's Counties (ULTGO bonds each rated 'AAA' by Fitch) in addition to levying user charges to fund operations and pay debt service obligations provides significant flexibility that has not been utilized to date. The tax would not be subject to the tax caps of the respective county charters.

The district's 2015 total assessed valuation (AV) was a significant \\$240 billion or about \\$137,000 per capita. Following multiple years of tax base declines AV increased by about 1%.

Montgomery County's economy is fueled by a large U.S. government presence, with depth and diversity added by an expanding biomedical sector driven in large part by the presence of the National Institutes of Health. The county's June 2015 unemployment rate was 4.4%, compared to 5.3% for the U.S. and 5.2% for Maryland. The county remains one of the wealthiest in the nation, with median household income well above the national and state averages. Favorable wealth characteristics are fueled by a highly educated workforce.

Prince George's County's economic base is anchored by vital governmental bureaus and higher education, including Andrews Air Force Base and the University of Maryland. A \\$1.3 billion MGM-branded casino is expected to open at National Harbor in 2016, adding 3,600 permanent jobs. The county has \\$2.5 billion in other development projects in its pipeline that will add to the county's robust economy. The June 2015 unemployment rate of 5.6% is above the state and national average. County income indicators exceed the nation and are on par with the state.

IMPROVED FINANCIAL OPERATIONS

Financial results of the utility system had typically been narrow, with management budgeting only to cover debt service and operating expenses. Fiscal 2014 ended with elevated all-in annual debt service coverage of 1.7x (including connection fees) but days cash on hand declined slightly to 221 (\\$220.5 million) from 230 in 2013.

The fiscal 2015 budget included a 5.5% increase in water and sewer rates to address funding for infrastructure improvements, increased costs of sanitary sewer overflow consent decree compliance, and cost increases at regional sewage disposal facilities. Also, the budget includes \\$2.3 million to further increase the operating reserve toward the district's goal of 10% of combined water and sewer revenues.
Preliminary (unaudited) fiscal 2015 year-end results yielded improved operating revenues and an increased net position.

Multiyear (fiscal 2016 - 2021) financial projections show annual budget gaps going forward that are expected to be addressed with a combination of operational reductions and rate increases. While the budget gaps are a concern for Fitch, much of the budgetary pressure is mitigated by the district's financial flexibility, which includes very low user rates (approximately 1% of household income), satisfactory cash on hand, and its unlimited taxing authority to pay debt service.

DEBT LEVELS EXPECTED TO REMAIN MANAGEABLE DESPITE SIZABLE CAPITAL PLAN

The district's debt burden is moderate. Debt per customer is above average at \\$2,401 but affordable given the wealthy customer base. Pay-out of district debt is rapid with over 60% of principal retired in 10 years. The district currently has \\$210 million (11% of outstanding debt) in variable-rate bond anticipation notes outstanding. While the district's cash is solid liquidity support is provided by two liquidity facilities.

The adopted CIP for fiscals 2016 - 2021 totals \\$3.2 billion, which is unchanged from the prior year's plan. Environmental spending will address an outstanding consent decree which requires upgrades to the district's wastewater treatment facilities and the Blue Plains treatment plant in order to comply with enhanced nutrient removal requirements mandated by the EPA.

Approximately 71% of the capital program is expected to be debt funded. Fitch estimates that the debt burden is expected to remain elevated but manageable at the current level of approximately \\$2,400 per customer as of fiscal 2014. The district expects to borrow annually with bond issues averaging \\$464 million through fiscal 2021. Additional funding sources include grants, system development charges and existing reserves.