OREANDA-NEWS. November 25, 2015. Fitch Ratings has affirmed the following ratings on Mansfield, Texas' (the city) outstanding bonds:

--\\$4.4 million drainage utility system (the system) revenue bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien on and gross pledge of the system revenues.

KEY RATING DRIVERS

SOUND FINANCIAL METRICS: The rating reflects healthy financial performance and flexibility as evidenced by a consistent trend of sound financial margins, historical annual debt service (ADS) coverage, and high liquidity.

STABLE REVENUES AND COSTS: Bonds are secured by a very stable and predictable revenue stream. The fixed drainage fee is assessed on the water and sewer bill and nonpayment of any portion of the bill results in termination of water service.

INCREASED RATES TO SUPPORT DEBT: The city recently increased rates which will nearly double the system revenue stream to support planned debt issuance. Prior to this rate increase, which will become effective on Jan. 1, 2016, the city's drainage rates had not changed since 2003.

FAVORABLE DEBT POSITION: Current debt levels are very low, and amortization of system debt is rapid. The capital improvement plan (CIP) currently under consideration is manageable and flexible, estimated at about \\$8.5 million over the next five to 10 years and could be entirely debt funded.

STRONG DEMOGRAPHICS: The service area is characterized by below-average unemployment and above-average area wealth levels.

RATING SENSITIVITIES

CONTINUED HEALTHY FINANCIAL METRICS: Maintenance of current financial margins is key to retaining the current rating level. The Stable Outlook reflects Fitch's expectation that a shift in fundamental credit characteristics is highly unlikely.

CREDIT PROFILE

DRAINAGE FEE PART OF MONTHLY UTILITY BILL

Located in southeastern Tarrant County, Mansfield's drainage utility fund serves the city's steadily growing population of approximately 60,000 residents. Residential drainage customers pay a flat monthly fee, while commercial, industrial, and other drainage customers are charged on a per-acre basis. The fees are included on Mansfield's waterworks and sewer system (revenue bonds rated 'AA'/Stable Outlook) monthly bills, with nonpayment of the fee resulting in termination of water service.

The city recently adopted an increase in its residential fee to \\$6.50 per month to support capital improvements. This is up significantly from the current \\$3.50 per month, which had been unchanged since June 2003. Despite the increase, the fee remains affordable relative to area income levels and even favorable compared to other cities that currently levy drainage fees.

WELL-MANAGED FINANCES

The fund's net revenues excluding grant receipts and related expenditures produced sound coverage ranging from 1.3x to 1.7x from fiscal 2010-2014. Unaudited fiscal 2015 results point to 1.7x ADS coverage, also excluding grants. The city provided cash flow projections, which conservatively assume that the entire CIP is debt financed with a bond sale in 2017 and reflect a one-time bump in ADS coverage to 3x in fiscal 2016. For the remainder of the forecast period (fiscals 2017-2020), ADS coverage remains closer to historical levels, ranging from a low 1.3x to high 1.6x.

Liquidity has been solid over the past five years. Cash and investments at the end of fiscal 2014 totaled \\$1.6 million or more than three years' worth of operating expenditures. Cash balances should remain solid and within historical norms over the next five years given that the CIP could be entirely debt financed.

While gross revenues are pledged to bondholders, Fitch calculates debt service coverage on a net revenue basis. Non-debt or grant-related system expenses are relatively stable and associated with administrative outlays and maintenance of drainage facilities. Given that newly adopted rates are expected to generate sufficient revenues to cover the increased level of debt service costs associated with the proposed CIP and relatively consistent annual operating expenses, financial performance is expected to remain strong.

LOW DEBT BURDEN, MANAGEABLE NEEDS

Debt levels are very low and have declined in the last five years due to lack of new money debt issuance and a rapid amortization schedule. Debt per capita at the close of fiscal 2014 was only \\$73, down from \\$104 in 2010. The system's series 2007 bond offering was the most recent new money debt issuance. Debt amortizes rapidly with 47% of debt retired in five years and 93% in 10 years.

The CIP currently under consideration is manageable, at about \\$8.5 million to be completed over the next five to 10 years. Major improvements include storm drain and channel improvements, culverts, facility design costs, and construction of two detention basins. Financing plans under consideration include entirely debt financing in a single year, in various tranches, or a combination of debt and pay-go. Assuming all the debt is issued in 2017, the total projected debt per capita will remain modest at only \\$143 per capita in year five. The city's recent adopted rate increase is expected to support the planned debt.

STRONG ECONOMIC FUNDAMENTALS

Mansfield's economic indicators are strong. Wealth levels as measured by median household income are high at about 180% of the state and national averages. The city's August 2015 unemployment rate of only 3.3% was below county (4%), state (4.4%), and national (5.2%) averages for the month. The city's abundant undeveloped land, proximity to the Dallas-Fort Worth metroplex, and construction of state highway 360, which is currently underway, are projected to sustain the expansion of its diversifying economy and tax base over the long term.