2008-07-23 23:43:03 -

- Fitch assigns an 'A-' rating to North Port, Florida's (the city) approximately $19.7 million utility system revenue bonds series 2008. The bonds will be privately placed. Proceeds from the bonds will be used to refund the city's utility system revenue bonds series 1998. Concurrently, Fitch assigns to the city an implied general obligation of 'A' and affirms the city's

approximately $28.1 million of outstanding utility system revenue bonds, which includes the $19.7 million of series 1998 which will be refunded with this issuance, at 'A-' and its $13.1 million on half-cent sales tax revenue bonds at 'A'. The Rating Outlook is Stable.

The 'A-' rating on the city's utility system revenue bonds is based on solid debt service coverage by pledged revenues, adequate legal provisions, and the city's strong prospects for continued growth. Also considered are the utility's high rates and potentially sizable upcoming capital needs.

The city's utility system generated $13.9 million in operating revenues in fiscal 2007, serving 17,844 water and 13,116 wastewater customers. Customer growth has been moderate despite large gains in population. While new development in the city's core and newly annexed areas are being developed with city water and wastewater infrastructure, the majority of recent growth has occurred in outlying neighborhoods which rely on wells and septic systems. The city's long-term goal is to connect the new developments to the city system. As the city works towards this goal, it will likely need to significantly increase capital spending. The city has taken the conservative approach of increasing the service area over time. Most of the cost of new extensions is planned to be funded with assessments for the areas receiving the benefit. Only one area, at a cost of $125.8 million, which includes all necessary infrastructures including utilities, roads, lighting, etc., is included in the five-year capital improvement plan (CIP), although the city has already stated that it plans to delay the extension due to the recent economic downturn.

Financial operations are sound, generating strong debt service coverage and additional income for capital needs. In fiscal 2007, coverage of debt service was 5.1 times (x). Without impact fees, it was still a solid 2.2 x. While Fitch expects impact fee revenue to decline substantially in the short-term, debt service coverage excluding impact fees and developer contributions is expected to remain sound. The capital plan is intensive with $220.4 million in utility needs over the next five years. Roughly 51% of the funding is expected to come from utility system bonds while 40% is attributed to impact fee revenue and 9% from developer contributions which Fitch views as optimistic. However, the city has stated that the plan will likely be elongated with non-essential projects pushed back. Existing treatment facilities are reportedly in good condition.

Water and sewer rates are high on a national basis and above average for area utilities. On an actual basis, rates for the utility are 12% higher than the state average. However, rates are comparable to those who receive wholesale water service from the Peace River/Manasota Regional Water Supply Authority. North Port's below average income levels make high rates a particular concern. North Port's average bill accounts for 2.2% of the city's median household income compared to the state average of 1.7%. In addition to consumption-based monthly charges, the city levies sizable impact fees and guaranteed revenue fees, which are assessed annually from the time of request for service until implementation.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Rachel A. Barkley, 212-908-0514 (New York)
Kelly McGary, 813-224-0492 (Tampa)
Sandro Scenga, 212-908-0278
(Media Relations, New York)