OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on the following Hillsborough County, FL's (the county) solid waste revenue bonds:

--$138 million outstanding solid waste & resource recovery revenue bonds, series 2006A and 2006B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the county's solid waste system. The debt service reserve fund equal to maximum annual debt service (MADS) is funded with a surety bond.

KEY RATING DRIVERS

SOUND OPERATING SYSTEM: The system continues to be managed well as processed waste levels have experienced modest increases as the economy has improved. The system benefits from a stable revenue base as over half of revenues are derived from special assessments levied on residents' tax bills.

LOWER COST STRUCTURE: Management has automated much of its collection operations and negotiated reduced hauler costs leading to an expected significant decrease in operating costs, enhancing operating flexibility and debt service coverage.

AMPLE DEBT SERVICE COVERAGE: Debt service coverage remains sound even with the recent fiscal year's increase in debt service as expenses have been managed down and revenues experience modest annual increases. Debt service coverage from net operating revenues has exceeded 1.65x in four out of the past five fiscal years.

MINIMAL CONTRACT RENEWAL RISK: Existing arrangements with most system vendors are expected to continue due to the long history of vendor relationships with the county, the county's competitive rates and a county flow control ordinance.

SOLID LIQUIDITY: Available cash and investments are ample representing over a year of operations.

LIMITED FUTURE DEBT NEEDS: The system funded improvements to its waste-to-energy facility in 2006 increasing its generation capacities, and its landfill capacity is strong resulting in moderate future expenditure needs.

RATING SENSITIVITIES

CHANGE IN FINANCIAL OPERATING PROFILE: Management of the inherent volatility of revenues through expenditure control and proper rate-setting measures is expected by Fitch to result in continued solid debt service coverage and strong liquidity. These actions are key to maintaining the current rating.

CREDIT PROFILE

The county's solid waste management system is an enterprise fund of Hillsborough County (GO rated 'AAA' with a Stable Outlook). The system serves the unincorporated portion of the county including portions of the cities of Tampa and Temple Terrace annexed after 1983 (the service area). The system performs collection, transportation, and disposal of all solid waste generated or brought into the service area. The county enacted a flow control ordinance in 1983 giving it control over the collection and disposal of solid waste within its service area. The system also sells electricity generated from its waste-to-energy resource recovery facility (RRF).

PROCESSED WASTE RESULTS STABILIZING
Solid waste tonnage collected by the county increased modestly the last two audited fiscal years after experiencing a decline related to the recession, a fall-off in construction, and increased recycling. Solid waste tonnage processed, excluding yard and wood waste, increased by 2.3% in fiscal 2014 compared to fiscal 2013. Projections for fiscal 2015 show a slight decline of 1.3% in overall tonnage, due to a decline in commercial tonnage, but officials cite this is likely the result of fiscal year classification changes.

SATISFACTORY LEGAL COVENANTS
The county covenants in the bond ordinance to charge residential assessments sufficient to cover collection costs and raise residential disposal assessments and tipping fees at least 3% annually if net revenue debt service coverage is less than 1.65x. Net revenues can include up to 25% of the fiscal year-end balance of rate stabilization funds.

RESIDENTIAL SPECIAL ASSESSMENTS PROVIDE STABILITY
In fiscal 2014, special assessments constituted 56% of operating revenue. Special assessments are levied and enforced in the same manner as property taxes ensuring a steady revenue stream regardless of the level of solid waste collected and processed in the system. Tax collections are strong and historically are at 99% annually. Residential customers for disposal services were projected for fiscal 2016 at 294,210 and for collection services at 266,478.

Due to the new franchise collection contract beginning in fiscal 2014 cost savings were passed along to residential customers, reducing the fiscal year 2014 annual assessment fee from $231 to $223 per residential unit. Such rates remain unchanged for fiscal 2015 and 2016. These rates are low when compared to other Florida counties with RRFs.

ELECTRIC GENERATION REVENUES SECURED THROUGH CONTRACT
Electric revenues are generated through the sale of power produced at the RRF which totaled approximately $17.4 million in fiscal 2014 or 17% of operating revenues. The county has a power purchase agreement with Seminole Electric Cooperative (Seminole) that provides for delivery of up to 38 megawatts of contracted energy of which the county is able to use 2.5 megawatts for its own use. The contract with Seminole expires in 2025. Rates were fixed through February 2015 and in March 2015, the rate changed pursuant to the contract to a monthly adjusted rate based on the system's average annual fuel cost. This rate has been falling at 1% to 1.5% per month and is projected by management to continue this trend. Fiscal-end 2015 electric revenues are projected at $17.1 million or 1.7% lower than fiscal 2014.

Any residual energy produced is sold to Tampa Electric Company, Inc., per an agreement. The county pays the RRF operator, Covanta Hillsborough, Inc., 10% of revenues pursuant to an operations contract as an incentive to produce and sell electricity.

TIPPING FEES DERIVED FROM NON-RESIDENTIAL WASTE
Non-residential waste revenues are derived from tipping fees, which totaled $17.7 million or 17.1% of operating revenues in fiscal 2014, and were up 9% over fiscal 2013. Three franchise haulers collect residential and commercial waste and pay tipping fees. These haulers are in the third year of a five year contract. Waste is also received from the City of Temple Terrace according to a contract to be processed at the RRF or landfill.

FISCAL 2014 DEBT SERVICE COVERAGE IMPROVED
Fiscal 2014 revenues experienced modest 3% year-over-year growth due primarily to a $2.7 million (2.6% of total revenues) growth in recycling revenues. Management instituted an automated residential recycling collection program providing larger bins to residents. Fiscal 2014 expenses declined notably by $7.6 million or 7.2% due mostly to a change in contractual service costs, down $12.5 million year-over-year, as a result of new franchise hauler contracts.

Debt service coverage from net operating revenues, as calculated by Fitch, was a sound 2.17x. This is an improvement from fiscal 2013 when coverage from net revenues was 1.42x before the use of funds from the rate stabilization fund were used to achieve the target 1.65x coverage threshold.

PROJECTED FISCAL 2015 RESULTS SHOW SOUND COVERAGE
Fiscal 2015 results are unaudited but officials project an approximate 2.8% decrease in operating revenues and modest 1.3% increase in expenses. Net revenues of $24.5 million cover total debt service of $13.9 million a sound 1.76x. Fiscal 2015 debt service increased from $12.7 million in fiscal 2014 and is equivalent to MADS for the system. Debt service remains steady through 2023 and then begins to decline through maturity in 2034. The managed savings from operations and reduced hauler costs continued to support the sound coverage in fiscal 2015.

AMPLE LIQUID RESOURCES
Liquidity is strong with approximately $94 million of combined restricted and unrestricted cash according to unaudited results at the end of fiscal 2015. This represents a robust 450 days cash on hand. Management has prudently decided to fully fund its landfill closure liabilities although the funds are not legally restricted and $35 million of the above amount represents these funds.

MANAGEABLE CAPITAL NEEDS
With the expansion of the RRF plant completed capital needs are anticipated to be manageable in the near term and payable on a pay-as-you go basis. Management is in the process of preparing a 20 year market study to determine the suitability of its existing facilities to meet future demand and the costs associated with such needs. The plan is expected to be completed by next summer and will provide for an estimate of future rate increases that may be necessary. Fitch expects future debt needs to be manageable and rates for service to remain competitive.

BROAD-BASED ECONOMY EXPERIENCING A STRONG RECOVERY
Located midway down the western coast of Florida, Hillsborough County serves as the economic center for Florida's Gulf Coast with major sectors in business services, government, health care, education and tourism. MacDill Air Force Base and the Tampa Port are major economic engines.

Wealth levels hover around regional and national averages, with poverty rates slightly above those of the state and nation.

Following a severe recession, the county has been experiencing a sustained and vigorous recovery. Employment growth has been robust and levels now exceed pre-recession highs. The unemployment rate of 5.1% as of August 2015 is an improvement from 6.3% a year prior and reflects job growth of 0.3% and a decline in labor of 0.9% year over year.

The insurer, USAA, opened one of the two planned newly constructed offices in Brandon last month and is projecting to add 1,200 new jobs. Additionally, a large upgrade at Tampa International Airport, a new Amazon distribution facility in the county and a proposed large waterfront mixed use development project are expected to further bolster job growth. Fitch believes that underlying economic characteristics of the county point to favorable prospects for continued expansion.