Fitch Rates West Palm Beach, FL's $48MM Utility System Revs 'AA-', Underlying.

NEW YORK -- Fitch Ratings assigns an underlying 'AA-' rating to West Palm Beach, Florida's (the city) approximately $12.5 million utility system revenue bonds, series 2004A and approximately $35.3 million utility system variable rate revenue bonds, series 2004B. The bonds, expected to be insured,

are scheduled to price through negotiation with a syndicate led by Citigroup and Bear Stearns & Co. Inc. on or about July 22. Dated the date of delivery, the series 2004A bonds mature Oct. 1, 2006-2019 (serials) and Oct. 1, 2020-2024 (term bonds). The series 2004B bonds will initially be issued as auction rate securities, and the city plans to enter into two swaption agreements with Citigroup and Bear Stearns Financial Products whereby the city will pay a fixed rate on the bonds. Secured by the net revenues of the city's water, sewer and stormwater utilities, series 2004 bond proceeds will be used to fund various capital improvements to the system. In addition, Fitch has assigned an 'AA-' to $99.6 million in outstanding parity debt. The Rating Outlook is Stable. At this time, Fitch affirms its 'AA-' rating on the city's $33.6 million in outstanding general obligation bonds.

The 'AA-' rating on the utility system revenue bonds is based on the system's sound financial operations and debt service coverage, competitive water and sewer rates compared to surrounding utilities' and adequate legal provisions. The rating also considers the service area's below average wealth levels compared to neighboring areas and unemployment rates historically higher than those of Palm Beach County and the state.

The series 2004 utility system bonds are secured by a pledge of the net revenues of the city's water, sewer and stormwater systems. The city has ample existing water supply drawn from a series of wetlands in the western portion of the city as well as a surficial groundwater wellfield that draws from the Floridian Aquifer and is used as a standby source. The water is generally of good quality and requires little treatment. Pursuant to an interlocal agreement the city owns and operates the East Central Regional Wastewater Reclamation Facility, which provides wastewater treatment for the city and the communities of Lake Worth, Palm Beach, Palm Beach County and Riviera Beach. The city is currently allocated 30.9% of the plant's 55 mgd treatment capacity. An expansion is in progress which will increase the city's share by 3.5 mgd providing ample system capacity for further growth. The stormwater system serves properties located within the city limits and is comprised of a series of canals and storm sewers that drain into the Lake Worth Lagoon. The fiscal 2004-2009 CIP totals $152 million, and is comprised of approximately 39% water projects, 34% sewer and 27% stormwater. Funding sources include this debt issuance as well as approximately $11 million in parity debt planned in fiscal 2008. The balance of the plan is mostly cash funded from various sources including impact fees revenue and renewal and replacement funds.

Financial operations are sound, shown by ample cash reserves and sound debt service coverage. Fiscal 2003 revenues covered projected MADS on this issuance and outstanding parity debt 1.5 times (x) excluding impact fees, and 1.9x including impact fees. Coverage is projected to remain at or above 1.8x MADS excluding impact fees through fiscal 2008 given planned rate increases and projected customer growth. The flow of funds is a closed loop structure whereby all excess revenues after debt service and funding of the reserve account and renewal and replacement account flow to the general reserve account. It is the city's policy to maintain the general reserve account at a level equal to at least 15% of budgeted operating revenue. The general reserve account is currently funded at $12 million, about 25% of fiscal 2003 operating revenues.

West Palm Beach is located in southeast Florida, on the intercoastal waterway. Primarily a residential and retirement community the area economy is focused on agriculture and health care services. Income levels are on par with the state and nation and below the county, which is characterized by high wealth levels. The April 2004 unemployment rate of 6.0% was higher than the state and county rates of 4.3% and 4.8% respectively.