OREANDA-NEWS. Fitch Ratings affirms its 'AA-' rating on the following bonds issued by the Central Brown County Water Authority, WI (CBCWA or the authority):

--Approximately $105.7 million water system revenue refunding bonds, series 2014A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net system revenues of the authority, which consist of payments made under water sales contracts from its six members' respective water systems (the charter members).

KEY RATING DRIVERS

SOLID MEMBER CREDIT QUALITY: The rating assigned by Fitch is primarily driven by the credit quality of the charter members' water systems. The largest of such members is the city of De Pere, which represents approximately 31% of CBCWA's water sales, while the next three largest members combine for approximately 59% of the authority's sales. De Pere is rated 'AA-'/Stable.

STEP-UP PROTECTION: If a member defaults on its payment obligation, the remaining members are obligated to make up any shortfall on a proportional basis, via funds available in their respective security fund accounts (held by CBCWA). However, Fitch believes practical limits as to the affordability of increased costs to the members limit the value of this provision to the rating.

STRONG RESERVE BALANCES: The authority's total liquidity in fiscal 2015 equated to a strong 1,500 days of cash available for operations. This is in excess of Fitch's 'AAA' median of 764 days.

SUBSTANTIAL DEBT BURDEN: CBCWA's debt burden is elevated by most metrics. For example, total debt-to-net plant assets is 110% versus Fitch's 'A' median of 67%. These metrics should improve over time due to the limited capital needs and the pace of amortization.

RATING SENSITIVITIES

CHANGES IN MEMBER CREDIT QUALITY: Any changes to the credit characteristics of CBCWA's largest members could impact the authority's credit quality.

CREDIT PROFILE

CBCWA's distribution system provides water on a wholesale basis to the charter members, which include the city of De Pere, the villages of Howard, Allouez, and Bellevue, and the towns of Lawrence and Ledgeview. The charter members service a combined total of approximately 28,000 water connections in and around the city of Green Bay, WI.

SOLID MEMBER CREDIT QUALITY

CBCWA's rating is based primarily on the credit quality of the largest charter members given the step-up requirements of the contract. In fiscal 2015, De Pere accounted for 31% of water sales, Howard accounted for 25%, while Allouez and Bellevue accounted for 17% each. Fitch only maintains a public rating on De Pere's water system; therefore we conduct an internal analysis of each of these other large members as part of our review of the authority. In its reviews, Fitch found each member to be of strong credit quality and, in general, performance has been sound since Fitch's last review in 2014.

WATER SALES CONTRACT

Under the contract between CBCWA and the charter members, CBCWA bills members for operations and maintenance (O&M) costs, fixed costs (including the payment of debt service and capital costs), and security fund deposits. An absolute and unconditional take-or-pay obligation in the water sales contracts requires members to pay debt service regardless of whether or not any water is delivered. Member retail systems make payments as an operating expense of their respective retail water system. As water sales fees charged to members are sized to include all O&M and debt service costs, the authority's annual debt service coverage typically approximates 1.0x (or 1.25x inclusive of amounts held in the coverage account, as allowed per bond covenants).

If a charter member cannot make its payment under the contract, CBCWA is obligated to draw monies from the defaulting charter member's security fund to cover the costs under the contract. Per the joint-and-several nature of the contract, if the draw from the defaulting member's security fund proves insufficient, CBCWA shall draw from the non-defaulting charter member's security fund, thereby providing a step-up obligation of the non-defaulting charter members. Each member's security fund is sized at a minimum of two months of allocable O&M and debt expenses.

LIQUIDITY PROVIDES ADDED STRENGTH

CBCWA maintains a significant level of unrestricted cash in addition to restricted monies in its renewal and replacement account, operations and maintenance reserve, and coverage account. In aggregate, these funds and accounts totaled $10.5 million in fiscal 2015, or nearly 1,500 days of cash. Going forward, the authority's cash is expected to remain high, albeit at slightly lower levels.

PLENTIFUL SUPPLY PROVIDED BY MPU

Since completion of CBCWA's water distribution system in 2007, the charter members have received 100% of their water supplies from CBCWA pursuant to the water sales contracts. CBCWA is a wholesale water customer of Manitowoc Public Utilities (MPU), which draws water from Lake Michigan. MPU's current treatment capacity allocated to CBCWA is 20 million gallons per day (mgd), well above the combined charter members' average demands of approximately 6.7 mgd in 2015.

DEBT LEVELS HIGH, CAPITAL NEEDS MODEST

Given the borrowing related to the initial construction of CBCWA's distribution system, fixed costs are high and have resulted in significant increases to charter members' cost of service over the last several years. However, with completion of the distribution system, prospects for additional borrowing over the next five to 10 years are modest. Therefore, escalation in CBCWA's pass-through costs to charter members over the intermediate term should be limited absent declines in purchases.

HEALTHY UNDERLYING ECONOMY

Brown County's unemployment rates have historically been below state and national rates. In April 2016, the county recorded an unemployment rate of 3.8%, which was lower than the 4.3% and 4.7% recorded for the state and nation, respectively. The county's median household income levels are about on par with the state and nation.