Fitch Assigns Orem, Utah's Water & Storm Sewer an Initial 'AA'

Fitch Ratings recently assigned an initial rating of 'AA' to Orem, Utah's $18.9 million water and storm sewer revenue bonds, series 2005A. The bonds are scheduled to price March 8 via George K. Baum & Co.

The bonds are secured by a net revenue pledge of the city's water and storm sewer systems. Proceeds will be used to fund costs of certain improvements to the water and storm sewer systems, purchase a reserve fund surety, and pay costs of issuance.

The high grade rating is based on the city's ample water supply and low rates; manageable capital plan, with no additional borrowing planned; stable financial operations and projected satisfactory debt service coverage; and moderately growing service area. Legal provisions also provide adequate bondholder protections.

Credit risks include some volatility in water sales associated with periodic drought conditions, particularly common to the western part of the country. However, management continues to respond appropriately to the effects of drought, while maintaining its sound financial position.

Orem, located about 40 miles south of Salt Lake City, is the fifth largest city in the state and part of the fast growing Provo-Orem metropolitan area. Orem's own growth has been more moderate, with the population increasing 6.3% since 2000 to approximately 90,000. The employment base is relatively diverse and includes higher education, government, and some manufacturing. Orem is also a retail hub for the area, with the city's per capita retail sales representing over 135% of the statewide average. Wealth indices are also above average, while the city's unemployment rate is consistently below the state and nation.

The city's storm sewer system consists of several hundred injection wells located on public and private property and comprise over 55 miles of storm drain pipe. The storm sewer system also includes 17 detention areas for storm water. Both the water and storm sewer systems are reportedly in compliance with all applicable state and federal regulations.

Source: Fitch