OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following Fairfax County, Virginia (the county) bonds:

--Approximately $131,900,000 sewer system revenue refunding bonds series 2016A.

The bonds are expected to price via negotiated sale week of April 4, 2016. Proceeds will be used to refund a portion of the county's sewer system revenue bonds series 2009 and series 2012, and pay for costs of issuance.

In addition, Fitch affirms approximately $288,965,000 of the county's outstanding sewer revenue bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from net revenues of the county's sewer system (the system), including availability fees and also secured by a debt service reserve fund.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The system has historically registered strong financial performance highlighted by strong debt service coverage and robust system liquidity.

MANAGEABLE DEBT BURDEN: Debt levels are above average for the rating category. Planned debt issuance over the next five years adds modestly to the debt profile, but the debt load remains manageable.

AFFORDABLE RATES: Rates are expected to remain affordable despite adopted rate increases through 2018.

AMPLE TREATMENT CAPACITY: The system maintains ample wastewater treatment capacity via system-owned facilities and contractual arrangement.

STRONG FINANCIAL PLANNING: Management has demonstrated extensive financial and capital planning.

SOLID SERVICE AREA ECONOMY: A mature service area with above average income levels and a sound local economy in Fairfax County (ULTGOs rated 'AAA') provide stability for capital and financial forecasting.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL PERFORMANCE: Significant leveraging or sustained financial decline could pressure the rating, but given the county's strong financial planning and healthy financial metrics such a situation is viewed as highly unlikely.

CREDIT PROFILE

The system's service area encompasses 234 square miles (about 60% of the county's total land mass) and serves more than 85% of the 410,000 households along with nearly all the businesses in the county. The system also treats flows from Arlington and Loudoun Counties, Fort Belvoir, the cities of Fairfax and Falls Church, and towns of Herndon and Vienna (all pursuant to perpetual service contracts). The service area lies in the Potomac River Watershed, a tributary shed of the Chesapeake Bay Basin. The customer base is very diverse with none of the largest users accounting for more than 0.3% of total operating revenues.

AMPLE SYSTEM CAPACITY

The county operates an integrated sewer system where approximately 40% of total system flows are treated at one county-owned facility. Additionally, the balance of treatment is met by separate service agreements with various surrounding jurisdictions. This includes the District of Columbia Water and Sewer Authority (rated 'AA-' with a Stable Outlook by Fitch) and Upper Occoquan Sewage Authority (UOSA, rated 'AA+' with a Stable Outlook). The county is in compliance with all state and federal regulations and currently has a discharge permit valid through February 2019.

System demand in fiscal 2015 totaled 97 million gallons a day (mgd), with capacity from the county owned plant as well the county treatment by contracted partners totaling 157 mgd. The remaining capacity of over 38% is considered more than sufficient for the largely built out service area. Given the integrated nature of the system, there is also the flexibility to transfer flows to other wastewater treatment plans as demand may dictate.

STRONG FINANCIAL PROFILE

Strong financial management and sound capital planning efforts have resulted in a low rate structure and strong financial metrics, thus providing the system with ample flexibility. Liquidity is sound as unrestricted cash equated to over 250 days of cash for operations at fiscal year-end 2015, exceeding the system's policy required minimum of 90 days working capital. When adding $51 million in the county's reserve for system improvements and extensions, liquidity jumps to over 456 days.

Debt service coverage (DSC) of total annual debt service (senior and subordinate lien debt) is strong, at over 2.5x since 2012. Excluding availability fees, total coverage was still high at over 2.0x since fiscal 2013.
Management provided forecasts through fiscal 2020, which appear reasonable, point to continued healthy total DSC of over 2x including availability fees, and 1.7x excluding availability fees.

VERY AFFORDABLE RATES

In 2010 the system implemented a fixed service charge rate to improve the stability of the revenue stream. Along with the institution of a fixed rate component, the system adopted a series of volumetric rate increases ranging from 10% to 17%. This allowed the system to maintain its strong financial profile while debt service costs rose. The current average monthly sewer bill is a very low 0.5% of median household income (MHI), well under Fitch's 2% MHI affordability threshold.

The system adopts rate increases in four year blocks with the current block adopted through fiscal 2018 ranging from 2.9% to 3.6%. Adopted rate increases have been structured to continue to increase the fixed base rate in an environment of growing customer connections, but flat to declining wastewater flows. The fixed base rate portion grows from 4% of the average residential bill in fiscal 2012 to 19% by fiscal 2018.

MANAGEABLE DEBT BURDEN

System leveraging is above average for the rating category. Debt per capita in fiscal 2015 is $660, compared to the 'AAA' rating category median of $297. Planned debt issuances of $90 million and $100 million are planned in 2017 and 2019, respectively, growing the debt profile modestly. The system's debt load is a mix of senior lien revenues bonds ($273 Million post-refunding) and subordinate lien debt. This comes in the form of loans from the Virginia Resources Authority ($37 million) for its proportional share of improvements to the Alexandria wastewater treatment plant, and a contractual obligation to UOSA ($265 million) for the expansion of and improvements to its wastewater treatment facilities.

CAPITAL SPENDING DRIVEN BY MODERNIZATION AND REGULATION

The system's six-year capital improvement plan (CIP) totals over $700 million. Taking into account the system's portion of UOSA's capital into consideration, the amount grows to over $762 million. Management attributes $331 million (44%) of the CIP to upgrades to the county owned plant. Approximately 24% of the CIP relates to regulatory needs associated with the Chesapeake Bay Program. The Chesapeake Bay Program is a regional partnership that includes requirements on wastewater treatment facilities to reduce nutrient levels in an effort to protect the Chesapeake Bay. Approximately 67% of the CIP will be funded with cash and the remainder will be debt financed through long-term revenue bonds.

MATURE, STABLE SERVICE AREA

Fairfax County's economy continues to perform well, benefiting from an established business base of federal contractors and high-tech companies that leverage Fairfax's highly educated labor pool, technology infrastructure, and an extensive transportation network anchored by Washington Dulles International Airport (Dulles).

The county's unemployment rate remains well below the state and nation, at 3% as of Dec. 2015. Solid gains are projected to continue within the professional, scientific and technical business services, and retail trade sectors. The strong local job market is complemented by one of the more highly educated labor forces in the nation, contributing to median household income of twice the national average.