MOODY'S ASSIGNS Aa3 RATING TO JEA'S (FL) $165 MILLION WATER AND SEWER SYSTEM REVENUE BONDS, 2010 SERIES A (FEDERALLY TAXABLE - BABS), SERIES B (FEDERALLY TAXABLE) AND SERIES C

Posted on: January 6, 2010, 2:59 pm

NEW YORK, Jan 6, 2010 -- Moody's Investors Service has assigned a Aa3 rating to JEA's (FL) sale of $165.1 million Water and Sewer System Revenue Bonds, 2010 Series A ($83.2 million; Federally Taxable - Issuer Subsidy - Build America Bonds), 2010 Series B ($24.2 million; Federally Taxable), and 2010 Series C ($57.6 million). The Aa3 rating applies to $1.7 billion post-sale senior lien bonds. At this time Moody's also affirms the Aa3 rating on $350.4 million outstanding subordinate lien bonds. The senior bonds currently being offered are secured by a senior lien on the net revenues of the combined water and sewer system and legally-available capacity fees. The Aa3 rating reflects the credit strengths of JEA which include the utility's sizable and diverse service area that includes acquired systems outside Jacksonville; good financial operations characterized by declining, but still satisfactory total debt service coverage; competitive rates and improved liquidity; and a manageable capital program. The long-term planning of JEA officials is also a noteworthy and important credit aspect, especially given the significant amount of outstanding obligations and the size of the system. Also reflected in the rating are the risks associated with the system's variable rate debt portfolio (26.5% of outstanding debt, which includes enhancements provided by standby purchase agreements, as well as a closely-managed swap portfolio. While potential exists for sustained elevation of debt service costs that could require draws on liquid reserves, JEA's long-term credit strength is supported by its capable management team's proven ability to arrange alternate financing, favorable term-out provisions and its ability to implement rate increases in a short time period. Further, the Aa3 rating on the subordinate bonds recognizes the moderate amount of subordinate debt (16.9% of total debt) in relation to the significant amount of senior lien debt, the maintenance of debt service reserves and the good coverage afforded subordinate bonds which currently mitigate the legal distinctions related to the sum-sufficient rate covenant and additional bond test. Finally, officials are also cash funding a remaining $58.7 million (as of September 30, 2009) in debt service reserve sureties due to insurer downgrades...

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