Fitch Affirms Albuquerque, NM's Refuse and Disposal Rev Bonds at 'AA'; Outlook Stable
Feb 14, 2013 (Close-Up Media via COMTEX) --
Fitch Ratings affirms the following Albuquerque, NM bonds at 'AA':
--$905,000 in outstanding refuse removal and disposal revenue bonds, series 1998.
In a release on February 11, Fitch noted that the Rating Outlook is Stable.
The bonds are secured by the net revenues of the city's refuse and disposal system (the system). Revenues include all income and revenues derived by the city from the operation of the system.
Key Rating Drivers
Exclusive Provider of Service: The city is the exclusive provider of collection and disposal service for all residential and commercial refuse in the city, excluding construction and demolition debris, resulting in greater stability for its solid waste operating revenues.
Rate Increase Enables Pay-Go Funding: The recent alignment of rates with the system's cost of service is expected to maintain solid debt service coverage levels and enable it to meet its most pressing capital need - equipment replacement.
Ample Landfill Capacity: The city's landfill capacity is ample, estimated at 66 years, considerably higher than previous calculations.
Competitive Rates: Residential and commercial rates remain competitive and will be reviewed annually on a cost of service basis which Fitch considers a credit positive.
Comprehensive Capital Plan: The adoption of an integrated waste management plan includes several medium to large capital projects. However, current debt plans are manageable as most projects will be funded with current resources.
Broad Economy Recovering Slowly: The city's economic base is broad and has been aided by its development as a high-tech hub. Recent unemployment trends remain sluggish but should improve in the medium term.
Material Weakening in Finances: A material change in the system's financial performance could affect the current rating level.
Large Customer Base and Ample Landfill Capacity
Albuquerque's solid waste system is operated by the city, providing collection and disposal services for all residential and commercial customers within city limits. The city bills residents a monthly fee (the third lowest in the region) on the water and sewer bill via an agreement with the Albuquerque Bernalillo County Water Utility Authority. Commercial customers are also billed monthly based on collection frequency, and all waste is disposed at the city's only operating landfill, Cerro Colorado. Residential and commercial waste represented 35 percent and 42 percent of total system tonnage, respectively, in fiscal 2012, while solid waste disposed by private haulers comprised 12 percent. The city also operates three convenience centers for customer drop-offs. Fitch notes the landfill's ample capacity through 2077 as a credit positive.
Solid Financial Performance
System financial operations are strong, reflected in 2x or greater debt service coverage, a five-year average working capital balance equal to 119 days, and recently improved operating margins. The city maintains a steady source of revenue control by collecting and disposing of all residential and commercial waste within the city. In fiscal 2012, residential and commercial waste generated 95 percent of operating revenues - each contributing about 47 percent. Remaining revenues consisted of privately hauled waste (3 percent) and convenience center waste (2 percent).
Tonnage Trends Stalled by Recession
Typical solid revenue growth stalled in fiscal years 2009 - 2010 due to the recessionary impact on tonnage which resulted in a modest 0.9 percent revenue gain in fiscal 2009 and a 1.2 percent decline in fiscal 2010. In response, previous high rates of expenditure growth were reversed in fiscal years 2009 and 2010, which posted 1 percent and 5 percent declines, respectively. Through mid-fiscal 2013, tonnage trends remain sluggish.
Rate Realignment Enables Pay-Go Spending
Based on a cost of service study, the city adopted average residential and commercial rate increases of 20 percent and 38 percent, respectively, effective November 1, 2010. As a result, all-in debt service coverage increased to a strong 3.74x in fiscal 2011. The new rate structure is projected to maintain debt service coverage above 3.0x through the final maturity of the outstanding bonds in July 2013. The rate increase is enabling the system to address its most pressing capital need - equipment replacement - which management plans to boost to about $7 million per year. Along with other capital needs, the city's capital plan includes $20 million in pay-go spending in fiscal 2013, followed by $10 million in annual pay-go funding through fiscal 2022.
Integrated Waste Management Plan Implementation
The city's goal is to update its cost of service study annually and present its findings to the city council for its consideration. The annual update is one recommendation of the recently completed integrated waste management plan. Other recommendations include development of a new materials recovery facility (MRF), implementation of a variable rate structure and cart-based residential recycling collection, plus construction of a new transfer station. The MRF is under construction as part of a public-private partnership that obligates a private operator to design, construct, and operate the facility. In turn, the city will share in the revenue from the sale of the city's recyclables processed by the facility. The transfer station, estimated at $25 million, is the only recommendation to require debt financing. The timing of the project has not yet been determined.
State's Population Center
Albuquerque is the largest city in the state, accounting for about one-quarter of the population. Driven by a notable 22 percent population gain since the 2000 census, building permits soared before contracting considerably during the economic recession. However, because the area did not experience rapid home price appreciation, the local housing market has remained fairly stable through the economic slowdown, posting only modest reappraisal losses in residential properties in fiscal years 2011 - 2013.
Employment Base Recovering Slowly
Kirtland Air Force Base, Sandia National Labs, and Intel are among the area's largest employers, helping transform it into a hub for electronics, aviation and aerospace and defense-related research and development. Employment trends in the Albuquerque metropolitan statistical area are stabilizing after posting annual losses since 2008. A modest increase in employment for the 12 months ending December 2012 helped lower the unemployment rate to 6.7 percent, on par with the state but still well below the national average. Numerous large planned projects in the service sector should improve employment trends over the medium term.
Additional information is available at 'fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Revenue Supported Rating Criteria, this action was informed by information from CreditScope, University Financial Associates, S&P/Case Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Rating Guidelines For Solid Waste Revenue Bonds' (June 22, 2012);
--'Revenue Supported Rating Criteria' (June 12, 2012).
Applicable Criteria and Related Research:
Rating Guidelines for Solid Waste Revenue Bonds
Revenue-Supported Rating Criteria
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