OREANDA-NEWS. Fitch Ratings affirms its 'AA' rating on the following Timpanogos Special Service District, UT (the district) bonds:

--$49.96 million in outstanding sewer revenue bonds, series 2010B (Build America Bonds).

The Rating Outlook is Stable.

Also, Fitch has withdrawn its ratings on all maturities for the following bond due to prerefunding activity:

--Sewer revenue and refunding bonds series 2010A.

The updated rating history for the above maturities is now reflected on Fitch's web site at 'www.fitchratings.com'.

SECURITY
The bonds are payable from a senior lien pledge on the net revenues of the sewer system, including impact fees. Bonds are also secured by debt service reserve funds provided by a surety policy, equal to 10% of the principal amount of the bonds.

KEY RATING DRIVERS

HEALTHY FINANCIAL METRICS; IMPACT FEE RELIANCE: Debt service coverage (DSC) remains strong at over 2x in fiscal 2014. DSC levels include impact fees, which can be variable but remain an important revenue source for this growing service area. Coverage excluding impact fee revenue is a weaker 1.1x. Liquidity is exceptionally strong with about seven years of cash on hand.

CASH DEFEASANCE LOWERS DEBT: The district cash-defeased $23 million in outstanding bonds in fiscals 2014 and 2015, resulting in a significant drop in annual debt service (ADS) and per capita debt levels that now fall well below Fitch's 'AA' median. The system debt burden should continue to decline due to no additional debt being planned.

AMPLE TREATMENT CAPACITY: Recent system expansion increased capacity by 60%, provided for advanced treatment of effluent and sufficient capacity for the next 20 years.

STRONG SERVICE AREA: The district provides wholesale wastewater treatment services to 10 members. Rapid growth in the region over the last two decades was only slightly stalled by the recession. The district's recent treatment plant expansion should position the district to accommodate expected increased flows.

RATING SENSITIVITIES
IMPROVEMENT IN COVERAGE: Sustained improvement in the system's debt service coverage excluding impact fees could result in positive rating movement.

CREDIT PROFILE
The district provides wholesale wastewater collection, treatment, and disposal services to 10 member jurisdictions within northern Utah County, under individual treatment contracts. The district's system consists primarily of an interceptor sewage piping system and treatment plant located on the shore of Utah Lake. The plant was recently expanded to 30 mgd from 18.3 mgd and is anticipated to provide treatment for the next 20 years.

SYSTEM CUSTOMER COMPOSITION
Combined, the members serve a population of approximately 188,000 via about 55,000 connections. The number of service connections grew by over 41% between 2004 and 2014. While the rate of growth slowed with the economic contraction in 2008 and 2009, the district's population continues to grow due to considerable amounts of affordable land available for development.

Members' treatment contracts extend to at least 2025 in advance of final bond maturity in 2035. The mismatch is mitigated by the lack of treatment alternatives for eight of the 10 members. Neither of the two others is among the district's three largest members who jointly account for 71% of the district's total revenues for fiscal year 2015. Members' payments to the district are an operations and maintenance expense and, therefore, take priority over the members' own debt service obligations. Members' funding obligations under the contracts are unconditional and continue even in the unlikely event that the wastewater treatment plant is unable to function.

RATE HIKES AND IMPACT FEES DRIVE SOLID FINANCIALS
The district's financial metrics are strong. Coverage including impact fee revenue was a solid 2.4x and 2.2x in fiscals 2013 and 2014, respectively. However, coverage excluding impact fee revenues was a weaker 1.1x over the same period, highlighting the importance of the district's impact fee revenues. The robust growth experienced in the area since 2000 and the presence of ample available land has benefited the district by providing continued strong impact fee revenue. Coverage levels generated in the last two fiscal years reflect substantial impact fee revenues of $10.1 million in 2013 and $8.3 million in 2014, or the equivalent of 76% and 59% of operating revenues, respectively.

Also influencing the district's healthy performance was a series of above-average rate hikes. The district implemented two double-digit rate increases in 2009 (26%) and 2010 (27%) followed by a 13.8% increase in 2014. The rate hikes were to ensure financial support of the expansion-related bond issuances and enhance the district's capital improvement program funding.

Liquidity remains exceptionally strong at $47 million in fiscal 2014, or over 2,500 days cash on hand. This balance includes approximately $7 million in the district's rate stabilization fund. A portion of the cash is expected to fund the district's modest capital plan over the next five years, but management expects balances to remain strong.

CASH DEFEASANCE SHRINKS DEBT BURDEN
In fiscals 2014 and 2015 the district used its large cash position to repay $23 million in outstanding bonds, leaving only the series 2010B Build America Bonds outstanding. As a result, debt per capita dropped to $297 from $441 and debt-to-net-plant dropped from 60% to 42%, with both ratios falling below Fitch's 'AA' median of $521 and 50%, respectively. Fitch expects debt levels to continue to decline given the district's lack of planned debt.

The cash defeasance reduced the fiscal 2015 (unaudited) ADS by $2.7 million, boosting DSC excluding impact fees to 2x. Management-provided forecasts for fiscal 2016 and 2017 point to even stronger coverage levels; however, those higher DSC levels reflect delayed principal repayment on the series 2010B bonds starting in fiscal 2018.

Since the issuance of the series 2010 bonds, the system has run operations to generate DSC from recurring revenues at or near 1.2x to 1.3x, which is adequate for a wholesale service provider. If the system were to sustain DSC higher than these historical norms once the series 2010B principal repayment begins, while still maintaining its robust cash position, upward rating movement is possible.

PLENTIFUL CAPACITY TO ABSORB GROWTH
The series 2010 bonds funded a significant portion of the district's $90.6 million 2010 capital improvement program (CIP). The expansion to 30 mgd and the corresponding treatment process upgrade was designed to accommodate population growth through 2035 and to address anticipated treatment processing requirement. Current system demand averages 15 mgd, leaving ample treatment capacity (50%) to address growth. The most recent 2016-2020 CIP is a very manageable $11 million that will be entirely cash-funded and focuses on system maintenance.

HEALTHY ECONOMIC INDICATORS IN GROWING REGION
Utah County is noted as a fast-growing area of the state and reports strong economic indicators of above-average wealth levels and low unemployment. For September 2015, unemployment in Utah County was a low 3%, compared to the state at 3.3% and nation at 4.9%. Area wealth levels registered on par with the state and 114% above national levels.