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  • mcprison mcprison Aug 9, 2001 2:58 AM Flag

    1 of 3 McFarland/CA contracts in ?

    Business Wire

    August 7, 2001, Tuesday

    DISTRIBUTION: Business Editors

    LENGTH: 580 words

    HEADLINE: Fitch Rts City of McFarland, California's Swr Sys Revs 'BBB-'

    DATELINE: NEW YORK, Aug. 7, 2001

    The City of McFarland, CA's (the city) approximately $1.36 million
    certificates of participation (2001 sewer-system financing project) are rated
    'BBB-' by Fitch.

    The certificates are scheduled to be sold competitively Aug. 8. The Rating
    Outlook is Stable.

    The sewer-system enterprise provides service to the city of McFarland, a 2.1
    square mile city located in Kern County, California. Located about 150 miles
    north of Los Angeles, the sewer-system infrastructure includes two lift stations
    and associated force mains, as well as, a treatment plant. Certificate proceeds
    will reimburse the city for the costs of acquiring additional property and
    upgrades to the system. The service area base includes over 2,266 service
    connections, mostly residential. The city's 2001 population is 10,168.

    McFarland's sewer system utility's credit strengths include the service's
    essential nature to the community, good financial operations, a competitive rate
    structure, and a demonstrated ability and willingness to raise rates to meet
    capital program costs. Financial operations are characterized by its positive
    operating margins. Capital needs are reported to be manageable and no additional
    debt is anticipated. This offering is the city's only outstanding debt. Recently
    upgraded, the treatment plant has a capacity of 1.8 million gallons per day
    (MGD). Current effluent flow is reported at approximately 1.2 MGD. The utility
    charges an annual flat rate of$185.95 per customer. Payment is collected on the
    property tax bill. Fiscal 2002 net revenues are projected to provide maximum
    annual debt service (MADs) coverage of 2.11 times (x). Cash balances are good
    relative to the utility's size.

    Offsetting credit factors include extreme revenue concentration, and the
    agriculturally dependent economy. More than 42% of total operating revenues are
    generated from the Wackenhut Correctional Facility, operators of three prisons
    within the service area. The prisons average 1,300 inmates per year, and the
    city charges the prisons the standard flat rate per prisoner. Two of the three
    prisons have contracts with the California Department of Corrections through
    2007. The third contract is set to expire this year and an extension is
    uncertain. Failure to extend the operating contracts presents a credit concern.
    The high concentration of revenues with one customer creates a higher level of
    dependence by the utility on that one entity. Discounting all revenue generated
    from the prison facilities, debt service is still met on a projected basis,
    however fiscal and economic stress would be likely if the contracts were not
    extended. The service area is characterized by the significant agricultural
    component in the economy, and, the city has above-average unemployment and low
    income levels, typical of agricultural economies.

    Legal provisions are sound. These certificates are secured by a first lien on
    water enterprise net revenues. The city is required to set and collect rates and
    charges for each year such that net revenues equal 125% of average annual debt
    service. Proceeds from this issuance will be used to fund a debt service reserve
    fund in an amount equal to maximum annual debt service. The enterprise is
    limited in the issuance of further debt by a traditional historical or projected
    additional bonds test.

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