SAN FRANCISCO--(BUSINESS WIRE)-- As part of its continuous surveillance efforts, Fitch Ratings takes the following rating actions on Clean Water Services, OR (the agency):

--Approximately $28 million senior lien revenue and refunding bonds, series 1997A, affirmed at 'AA';

--Approximately $19.4 million subordinate lien sewer revenue refunding bonds, 1997 Series One, affirmed at 'AA-'.

The agency has approximately $237 million in additional debt outstanding that is not rated by Fitch but has been incorporated into Fitch's financial and debt ratios.

The Rating Outlook is Stable.

RATING RATIONALE:

--The issuer is a regional provider of wastewater treatment services to most of Washington County, OR located in the Greater Portland MSA.

--The credit risk profile includes operational risk associated with four wastewater treatment plants in addition to the extensive collection system.

--The agency's wholesale business (53% of revenues) provides revenue stability.

--Modest annual rate increases have kept pace with cost increases and competitive rates should provide flexibility to absorb anticipated rate increases.

--Decline in the county's growth levels related to the economic recession have slowed new development in the territory but the modest decline in system development fees has not had a material impact on financial performance.

--Strong and consistent financial performance and liquidity.

--Broad mission that extends beyond provision of sewer services places additional responsibilities on the agency and its capital needs.

KEY RATING DRIVERS:

--Rising debt levels could pressure operations, although leverage ratios are favorable and additional debt is not anticipated until 2014.

--Preservation of strong financial margins and liquidity.

SECURITY:

Bondholders are secured by a net revenue pledge of the sanitary sewer system, which includes the agency's stormwater operations.

CREDIT SUMMARY:

The agency was formed by a vote of the people in 1970 in response to serious health and pollution problems in the Tualatin River. At the time, the state had imposed a building moratorium in Washington County until the problems were addressed. The agency consolidated the collection and treatment of wastewater for 16 individual sanitary districts and 13 municipalities. The agency currently serves 95% of the population in the county, or approximately 520,000 people. Recent growth in the county, which is part of the greater Portland metropolitan area, has been strong although residential development has tapered off since 2007. Major industries include technology, clothing manufacturing, wineries, and farm and forest products. Unemployment spiked to over 10% in 2009 from previous levels around 4.5%.

The agency serves a mix of wholesale and retail customers. Retail collection and billing services are provided to five smaller cities in the county. The agency is required to transfer 4% of revenues back to each respective city as a franchise fee. Retail rates, which include a $4/month fee to support surface water management activities, are competitive for the region, with an average bill of $34.95 in 2009. Wholesale service is provided to nine cities in the service territory that are, in turn, responsible for maintaining their own collection systems. Services charges are based on the agency's rate per equivalent dwelling unit (EDU) per month and the respective wholesale customer's flow. Wholesale revenues account for around 53% of total revenues in fiscal 2009. Clean Water Services has four wastewater treatment plants, with the largest two providing tertiary treatment of effluent. The combined treatment capacity of the plants of 71.3 million gallons per day (mgd) in dry weather is sufficient to meet the average flow of 51.9 mgd; wet weather capacity is greater.

Credit concerns center on the agency's broad mission that extends beyond the provision of sewer services in its service territory to include protection of water quality in the river drainage basin through the additional provision of surface water management and other projects to improve overall water quality. The surface water management services are supported by fees charged to users, which are included in the overall pledge to bondholders.

Financial performance has been strong, supported by consistent annual rate increases that have kept pace with increasing costs. Rate increases have been modest, averaging 3.7% annually over the last five years. Debt service coverage of senior lien revenues bonds was 2.75 times (x) in fiscal 2009 and coverage of all obligations, including subordinate lien revenue bonds, was 1.99x. Revenues are derived principally from service fees and connection fees; the agency does not receive any tax revenues. Connection fees remain a substantial source of revenues, providing around $9.7 million in 2009, down from $15 million in 2005. Liquidity is excellent with $45.2 million in unrestricted cash reserves at the end of fiscal 2009, or 328 days operating cash. The agency has made an effort to spend cash balances down over the past few years to support capital spending in order to reduce additional debt borrowing to funds its capital needs.

Capital needs over the next five years are estimated at $295 million. This amount does not include the potential Tualatin Water Supply Project - a joint project in the region for which the agency is the project manager. Clean Water will be responsible for 31% of project costs (currently estimated at $170 million) and will benefit from the improved water quality the project will provide to the river. This project is not currently scheduled to occur in the five-year capital plan time period.

These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:

--'Revenue-Supported Rating Criteria', Dec. 29, 2009;

--'Water and Sewer Revenue Bond Rating Guidelines', Aug. 6, 2008.

Additional information is available at www.fitchratings.com.

Related Research:

Water and Sewer Revenue Bond Rating Guidelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=395918

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493154

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CONTACT:

Fitch Ratings, San Francisco
Kathy Masterson, +1-415-732-5622
Andrew Ward, +1-415-732-5617
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

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