NEW YORK (BUSINESS WIRE) JEA's Combined Water and Sewer System, FL (JEA W&S) $125 million water and sewer system revenue bonds 2002 series A are rated 'AA' by Fitch Ratings. The ratings on the outstanding $683 million fixed-rate water and sewer revenue bonds and the $278 million variable-rate water and sewer revenue bonds are affirmed at 'AA' and 'AA/F1+', respectively. Fitch also affirmed the 'AA' rating on the $82 million of outstanding water and sewer system subordinate revenue bonds, crossover series. The Rating Outlook is Stable. The 2002 series A bonds are scheduled to price the week of April 1, 2002, with Salomon Smith Barney serving as lead manager. Proceeds will primarily be used to pay the costs of certain additions and improvements to the Water and Sewer System, and replenish funds JEA expended in connection with the acquisition of the United Water Florida, Inc assets.
JEA W&S' rating reflects the excellent service area economy, a proactive management team, very competitive rates, and solid financial performance of the water and sewer system. The recent purchase of United Water Florida Inc.'s (UWF) water and sewer assets meets management's business strategy by providing overall operating and capital savings from cost reductions due to the elimination of overlapping services and other system efficiencies, as well as economies of scale. The acquisition expands JEA W&S' service area in the counties of Duval, St. Johns, and Nassau and increases the water customer base by 33,526 to about 235,800, and the sewer system by 25,785 to about 174,000. Additional credit strengths include a lack of customer concentration and a service area that exhibits strong economic growth and favorable wealth indicators. In addition, the system enjoys ample water supply and both the water and sewer systems are in good physical condition with adequate treatment capacity. The combined monthly bill com pares well to regional utilities and is below that of its immediate neighbors.
While concerns center on JEA's large capital improvement plan (CIP - approximately $854.3 million, over the next five years beginning fiscal year 2002) and the potential for cost over-runs, the water and sewer system's financial profile remains strong. The CIP includes system upgrades, replacements and additions to reduce future operating and maintenance costs, and to increase water capacity by about 14% over the next five years. Consequently, over the next few years management plans to reduce and maintain the system's debt service coverage levels at about 1.9 times (x) down from 2.31x for fiscal year 2001. JEA's projected coverage levels take into account the sizable CIP, including the acquisition of UWF's assets for about $225 million, and level rates throughout the forecast period. Fitch believes that JEA's projected coverage level is supportive of the 'AA' rating, considering the system's strong credit fundamentals as stated above.
The JEA water and sewer business serves approximately 236,000 and 174,000 water and sewer accounts, respectively. Revenues are approximately 54% residential, 38% commercial and industrial, 5% irrigation and 3% governmental. The service area includes virtually all of the City of Jacksonville, with the exception of the beach communities, the Town of Baldwin, the U.S. naval facilities, and those areas served by other community and investor-owned water and sewer utilities.
