Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
(0008) IR 20-10502 - Stormwater Bond Sale and Capital Improvement Program
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 20-10502 To the Mayor and Members of the City Council October 27, 2020 Page 1 of 1 i r + SUBJECT: UPDATE ON STORMWATER BOND SALE AND CAPITAL r VA IMPROVEMENT PROGRAM This Informal Report is submitted to update the City Council on the recent Stormwater revenue bond sale and associated Capital Improvement Program. Supported by the 6.5% increase in the Stormwater Utility Fee approved by City Council as a part of the FY20 budget process, the City received bids on October 15, 2020 for $53 million in new stormwater revenue bonds to support expediting critical capital projects. The debt sale also included the refinancing of $55.3 million in outstanding debt. The bonds were rated by S&P Global and Fitch Ratings. Both agencies assigned and affirmed the Stormwater System's AA+/Stable credit rating. A copy of the rating reports accompany this informal report. The attached PowerPoint provides details on the bids received for the revenue bonds and the Stormwater Program's plan for use of the funds. Highlights include: • The low bid for the debt was an extremely attractive 1.95% interest rate. • The refinancing of outstanding debt resulted in a savings of almost $12 million in debt service payments through 2037. • The low interest rate on the new debt plus the savings in debt service on the outstanding debt will allow the program to sell an additional $34 million in revenue bonds in 2023, increasing the total program amount from the original estimate of $70 million to $87 million. • The planned use of the $87 million in revenue bonds through 2025, which prioritizes the mitigation of life safety hazards, is as follows: o $30.5 million to mitigate hazardous road overtopping locations o $26.1 million to prevent hazardous road collapses and maintain the flow capacity of the existing drainage system through the rehabilitation of aging, deteriorated pipes o $17.4 million to mitigate the risk of chronic structure flooding — The plan is to focus the bulk of these funds on the design and construction of the next phase of the Lebow Channel flood mitigation project. o $13 million to protect public infrastructure and private property from severe channel erosion through channel restoration The attachment includes lists for the top priority projects that are expected to be executed with these funds over the next three years. Project development and prioritization is ongoing to refine those lists as needed to determine the highest priority projects to be executed in 2024 and 2025 with the next revenue bond sale. Questions about this can be directed to Jennifer Dyke, TPW Stormwater Program Manager, at 817-392- 2714. David Cooke City Manager Attachments ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS Stormwater Bond Program Update City Council Work Session October 27, 2020 Greg Simmons, Assistant TPW Director, Streets/Stormwater/ROW Management Reginald Zeno, Director, Financial Management Services Jennifer Dyke, TPW Stormwater Program Manager • Drainage Bond Sale Results • Bonds funded: ■ $53mm for new projects in alignment with Stormwater CIP ■ $55.33mm refinanced Series 2011 Bonds for savings • Both Fitch and S&P, assigned and affirmed the City's Drainage Utility rating at AA+/Stable • Competitive bids were received on October 15t" with 5 bidders participating • Winning bid was provided by Wells Fargo • Bond sale results: Total Par Amount: $ 103,695,000 $ 103,210,000 True Interest Cost: 2.25% 1.95% New Project Funds: 1 $ 53,000,000 1 $ 53,000,000 Total Debt Service Savings: $ 9,140,885 $ 11,897,452 Net Present Value (PV) Savings: $ 7,810,150 $ 10,558,381 PV Savings as % of Refunded Principal: 14.1% 19.1% Note that savings shown are after all transaction costs are paid. • Background • Debt Capacity • Delivery Capacity • Funding Allocation •Project Prioritization • Potential Projects • FY21 Focus / Next Steps Storm wa ter Program Mission Protect people and property from harmful stormwater runoff Background • 6.5% fee increase approved by City Council in October 2019 • Fee increase took effect January 1, 2020 • FY 20 revenue increase - $1.7 million • Capacity for $70 million in bonds • Focus on increasing delivery of high priority capital improvements ✓ Mitigating hazardous road overtopping ✓ Rehabilitating aging storm drain pipes ✓ Restoring highly eroded channels ✓ Mitigating flooding to homes and businesses Debt Capacity • November issuance of $53M • Historically low interest rates • Expected -2.1 - 2.4%; actual pricing at 1.95% • Structured issuance so debt service payments are lower in the early years, allowing for more debt capacity for the Nov. 2023 sale • Nov. 2023 issuance projected to be ~$34M vs. ~$17M initially estimated, for a total 5-year bond program of $87M (vs. $70M) FY21=25 Capital Delivery Capacity Hazardous Road Overtopping -100 locations 3-5 major locations 10-12 major locations 12-14 major locations Mitigation (HROM) -$3-4M major 10-12 safety 30-35 safety locations (Major Mitigation or -$150k minor locations Safety Improvement) -80 miles Pipe Rehabilitation 6 to 8 miles 14 to 16 miles -$2.5M/mile -22 miles known Channel Restoration 0 3 to 4 miles -$2.6M/mile -45-50 project phases Flood Mitigation 0 1 -$10-15M/phase 35-40 safety locations 15 to 17 miles 4 to 5 miles 1 $87 Million Revenue Bond Allocation Flood Mitigation $17.4M Channel Restoration $13.OM 11 AN Hazardous Road Overtopping Mitigation $30.5M Pipe Rehabilitation $26.1 M Goal: Award/Commit $87M by end of FY2F W. 7t" & Carroll S. Cravens Rd Prioritization Criteria • Primary Criteria — Hazard / risk based • Secondary Criteria — Partnership/leveraging opportunities — Coordination with City bond program — Racial/cultural equity — Economic development — Contribution to other City plans/initiatives such as open space Hazardous Roadway Overtopping Priorities • Identified the most hazardous locations based on: • Depth of flow over road • History of fatalities & high water rescues • Citizen complaints • Risk of fatality • Other considerations • Ease of project implementation • Flow velocity • Traffic volume & detour length nrcurvi rrojeci types Major Mitigation • Raise road profile • Bridge • Upsized culverts • Significantly reduce frequency and magnitude of overtopping • Road closure • Projects > $4 to 6 million are candidates for safety upgrades • Major mitigation not affordable at this scale of capital program Safety Upgrades Road still subject to flooding • Guardrails or other physical barrier • Signage • Warning beacons • Lighting Oak Grove Safety Improvements Hazardous Road Overtopping Mitigation FY21m23 Current Priorities Shoreview at Bomber o� e o o� • Alameda near Camp Bowie Majorl • Capacity Improvements Saftey Upgrades Super Majority Minority Areas at Decatur Quail at Elizabeth Location SMMA CD Major/Capacity Improvements 28th Street West of Decatur Ave. Yes 2 3420 Alemeda at MSC-1 No 3 Quail at Elizabeth (Trib. to Lake Arlington) No 5 Shoreview at Bomber Road No 7 Safety Improvements 2000 N.E. 36th Street @ Lebow Channel Yes 2 4000 Edgehill at CF-4A No 3 7600 Willis at Royal Channel No 3 7801 Wycliff at Royal Channel No 3 4201 Cravens Rd @ VC-1 No 5 100 Bonds Ranch Road West No 7 Maddox Ave @ Sycamore Creek Yes 8 1800 Risinger Road West Yes 8 5400 Everman-Kennedale-Burleson Rd at Village No 8 Creek Trail Lake at Granbury Road -Wabash Ave @ CF-3 No 9 1900 Yates Avenue No 9 FY21-23 HROM Allocation $17.5M Pipe ehab Priorities Identify hazardous pipes based on condition • Follow industry standard pipe condition rating system • Broken, cracks, fractures, collapsed, holes, deformed • Reasons for defect- roots, sediment/rocks • Length & severity of problem • Factor in consequence of failure Note: Citywide infrastructure is N1,000 miles. Ramping up Closed Circuit Television (CCTV) inspection program to 25 miles/year to better understand needs and inform priorities. 12 Pipe Rehab FY21m23 Current Priorities NW 14th House Roseland St Clover Pershing Thomas Madeline Bryce Birchman Camp Bowie Judy Beacon Forum Brentwood Stair S Will Rogers Blvd Location 7 AN Homan to Harrington Hampshire to Vinson E Lancaster to 200 ft North of E Lancaster Lafayette to Dexter El Campo to Pershing Calmont to Pershing Belle to Madeline Western to Carleton Pershing to Birchman Montgomery St to 200 ft E. of Montgomery St Panola to Judy Everman to Beacon Barron to Forum Shilling to Hollowbrook Joel East Rd to 200 ft South of Joel East Rd Yes No Yes No No No No No No No Yes Yes No 2 5 5 7 7 7 7 7 7 n h No 8 Yes 8 FY21-23 Pipe Rehab Allocation $14-4M Pipe Rehab FY21m23 Current Priorities, cont. Locatio SMMA Council Location SMM � District AL Fairmount Morphy to Magnolia No 9 Wayside W Biddison to Monda Yes 8th St Oleander to Mistletoe No 9 Jarvis Lipscomb to Hemphill No Carroll St to Burlington W Vickery to 5th St Northern Santa Fe RR No 9 Main Industrial No W Berry Merida to Sandage No 9 N Henderson W Peach to W Bluff No Merida W Devitt to Merida No 9 W 10th St Florence to Macon No Foch 6th St to 5th St No 9 W Morphy Fairmount to 6th Ave No Carroll 5th to Merrimac No 9 Weisenberger Currie to Wimberly No South Main St Louis to S Main St Yes 9 7th St Burnett to Collier No Cleburne Cleburne to Townsend Yes 9 Magnolia Hurley to Fairmount No 7 I* .0j Channel Restoration Priorities Metrics Include • Property Damag • Sedimentation • Erosion • Vegetation • ChannelType • Location Note: Citywide channel assessment underway to better understand needs and inform priorities TPW STORMWATER CHANNEL RATING FORM Channel Name: Address: Council District: Date: 01/24/2017 Mapsco: Inspected By: Karla Morales CATEGORY SCORING LOW HIGH 1 2 3 4 5 SEDIMENTATION Sedimentation condition Sediment movement 5100kagelclogging TrashlDebris 2 2 2 3 EROSION Erosion Bank & Channel stability Bank cutting 3 4 VEGETATION Vegetation condition Vegetative Sank protection 2 t PROPERTY DAMAGE Flooding roads Flooding of Private struclures Utility Asset Damage Structural Components (Channel concrete condition) 1 1 4 1 Scoring Totall 26 CHANNEL_ TYPE Earthen Maintained I J concrete 1 25 Earthen Unnnaintalned 1.5 1.1 LOCATION (adjacent property) Undeveloped Service Road Commercial I.i Residential J FORT WORTH:: Notes: Total Score 57.20 Formula: Scoring Total"Charnel Type`Location=Total Score Priority Level Scale > 50 High Priority Work Order >30 and <50 Low Priority Work Order >28 and <30 Reactive Maintenance <27 Routine Maintenance Condition Rating Scale 1 = Good 2=1 3 = Fair/Degrading Condition 4 = Poor/In need of Attention 5 = FailureANorst Condition Channel Restoration FY21=23 Current Priorities r.L.ocation Al Council DistrictI,= '9111� 3007 20th St Yes 2 1170 Sleepy Hollow Yes 2 3516 Brandon Ln No 3 3600 Bandera Rd No 3 5617 Lovell Ave No 3 4700 Old Benbrook No 3 4200 Old Benbrook No 3 2901 Lake Como No 3 6301 McCart Ave Yes 6 3150 Altamesa Blvd Yes 6 6313 Westcreek Yes 6 7925 Forest Hill Dr No 8 5124 Shackleford St Yes 8 5701 6th Ave Yes 9 5183 Townsend Dr No 9 el Large Flood Mitigation Priorities= Examples A phase of one of these could be feasible Near Westside TCU/Berry 17 Lebow Channel Flood itigation Histo Flooding helped lead to the creation of the Stormwater Utility • 5 fatalities in 2 events (1988 & 2004) • 200+ homes in floodplain (pre -projects) • 15 hazardous crossin s ( re- rodects) • 2007 Concept Plan • Remove roadway flooding & flooding from structures • Enhance environment & aesthetics along the channel • Extensive community engagement • H ow? • Channel improvements & detention • Buyouts • Roadway improvements • Multiple phases overtime R r'll - = POINT WORTH STAR-TELEGRAMfRM JENNSNS A car rests Ina creek In Trail Pricers Parkin north Fart Worth, downstream from the spat where an unIden- tified mans body was found Wednesday. Lebow Channel Flood itigation • ~$20M spent to date on improvements Remaining needs: Lower Lebow channel restoration • Upper Lebow detention & channel improvements • Hazardous Road Overtopping mitigation • Remaining project cost ~$40M • FY21-23 Allocation $13.6M • Opportunities for recreational elements, open space, and trail connectivity _Ir Detention Po ential CorLpopt FY21 Focus / Next Steps • Project Development for future FY design &construction • HROM, pipe rehab, channel restoration &Lebow flood mitigation • Construction will be ramped up over the 5-year delivery period • HROM Design • Alemeda 28tn at Decatur • HROM Construction • Shoreview at Bomber • Safety improvements • Pipe Rehab -design and construction • Channel Restoration -design Questions Discussion 21 S&P Global Ratings RatingsDirect @ Summary: Fort Worth, Texas; Water/Sewer Primary Credit Analyst: Omid Rahmani, Farmers Branch + 1 (214) 765 5880; omid.rahmani@spglobal.com Secondary Contact: John Schulz, Centennial (1) 303-721-4385; john.schulz@spglobal.com Table Of Contents Rating Action Stable Outlook Credit Opinion Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 1 Summary: Fort Worth, Texas; Water/Sewer US$103.695 mil dr util sys rev rfdg & imp bnds ser 2020A due 02/15/2045 Long Term Rating AA+/Stable New Fort Worth drainage Long Term Rating AA+/Stable Affirmed Rating Action S&P Global Ratings assigned its 'AA+' rating to Fort Worth, Texas' series 2020 drainage utility system revenue refunding bonds. At the same time, we affirmed our'AA+' rating on the city's parity senior -lien drainage system revenue debt. The outlook is stable. Credit overview The system's first -lien pledge of gross revenues generated from stormwater system operations secures the approximately $103.695 million series 2020 bonds. After the issuance, Fort Worth will have just over $151.12 million in outstanding drainage debt. Officials intend to use the series 2020 bond proceeds to refund a portion of the system's debt for savings to finance various drainage improvements and erosion projects. They indicate they have not entered into any direct -purchase bank debt. We consider bond provisions credit neutral. The rating reflects our opinion of the system's general creditworthiness, including the city's extremely strong enterprise risk profile and very strong financial risk profile. Management has to date been successful in maintaining a multiyear capital plan, extremely strong historic all -in coverage levels, and a very strong liquidity position. The enterprise risk profile reflects our view of the system's: • Robust and stable area economy despite some slowdowns as a result of the economic downturn that serves as an anchor in the broad and diverse Dallas -Fort Worth -Arlington metropolitan statistical area (MSA); • Very low industry risk as a monopolistic service provider of an essential public utility; • Affordable rates based on very strong income levels, • Good operational management practices. The financial risk profile reflects our opinion of system's: • All -in debt service coverage (DSC) which has trended at levels which we consider extremely strong in the previous three fiscal years; • Very strong unrestricted liquidity, which has trended down from 297 to 103 days' cash on hand during the past three audited fiscal years; • Weak debt position with a debt -to -capitalization ratio of just under 64% when including the series 2020 revenue WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 2 Summary: Fort Worth, Texas; Water/Sewer bonds; and • Good financial management practices and policies under our Financial Management Assessment (FMA) methodology. Environmental, social, and governance factors Overall, we believe that management has mitigated most of its environmental and governance -related risk by adopting, adhering to, and adjusting operating and financial policies and procedures. We believe that Fort Worth is exposed to elevated social risk resulting from the COVID-19 pandemic. While we believe it's possible the city's revenues could experience some declines for fiscal 2020, ultimately, our expectation is that management will continue to manage the system to maintain sound financial metrics. The utility also has 103 days' cash on hand, which we believe provides a modest cushion against short-term disruptions. While we continue to monitor events related to COVID-19, we do not currently expect it to affect the utility's ability to maintain budgetary balance and pay debt service costs. For more information, see our article "The U.S. Economy Reboots, With Obstacles Ahead" (published Sept. 24, 2020, on RatingsDirect). Stable Outlook The stable outlook reflects our opinion that the modest monthly fees and strong collections from a broad and diverse customer base will sustain the city's enterprise risk profile over our two-year outlook horizon, and that the system's financial capacity will be preserved given the current lack of additional debt plans and manageable capital needs. Downside scenario The rating could come under pressure should there be a sustained drop in the system's all -in coverage metrics below recent levels or further drawdowns on liquidity. Other sources of rating pressure include if the economic fundamentals of the service area deteriorate as a result of the economic slowdown or an over -reliance on utility surplus net revenues by other major operating funds. Upside scenario While the city's commitment to pay-as-you-go funding allows it to keep total system indebtedness manageable and overall cash flow strong, a higher rating, in our opinion, is precluded by the totality of system needs, even if they can be achieved at the discretion of the city's prioritization. Credit Opinion Bonds provisions are credit neutral and include: • Our understanding that no reserve fund will be included for this issuance; • A rate covenant that stipulates maintaining rates at a minimum of 1.25x maximum annual debt service (MADS); and • The city's additional bonds test calls for net revenues to cover MAIDS of all debt, including proposed debt, by at least 1.5x. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 3 Summary: Fort Worth, Texas; Water/Sewer Enterprise risk The system serves a stable, deep, and diverse customer base with a total population estimate of slightly under 1 million in Tarrant County. The Fort Worth MSA remains one of the more robust in the state, led by health care, professional services, and construction, which have more than offset the energy sector's weakness since the drop in commodity prices. The city is also home to Texas Christian University, Texas Wesleyan University, a robust community college system, and numerous other institutions of higher learning. Thus, the residents benefit from the city's position as an anchor in the broad and diverse Dallas -Fort Worth -Arlington MSA. Income indicators are what we consider good, with median household effective buying income (MHHEBI) equal to 99% of the national average. Current unemployment levels are about 8%, which has over doubled in past year as a result of the economic downturn. Currently, the average drainage bill for city residents is very affordable. The most recent adjustment was in January 2020, with a monthly utility fee per equivalent residential unit (ERU; one household, or tier 2 in the city's fee schedule) of $5.75 per month. Management has a goal to review rates regularly and adjust the base rate as necessary, depending on the priority of planned system improvements, currently funded from internally generated funds as well as remaining unspent bond proceeds. We believe this is a strength that lends itself to future credit stability. Based on our operational management assessment, we view the stormwater system as a'2' on a six -point scale with'1' being the strongest. An assessment of good, in our view, implies that the system's operational practices and policies are good and primarily comprehensive. The system maintenance and expansion priorities reflect the level of life safety and structural risk. The priorities are addressed in detail in the city's capital improvement plan (CIP). The city benefits from well tenured and experienced staff with robust mentoring initiatives paving the way for continuity. The most recent adjustment was in 2020, with a monthly fee per ERU. Management has a goal to review rates regularly and adjust the base rate as necessary. Financial risk All -in coverage is S&P Global Ratings' adjusted DSC metric that treats certain recurring financial obligations as if they were debt. In Fort Worth's case, we incorporate transfer payments to the general fund for administrative costs and payment -in -lieu -of taxes (PILOT) payments since we view them as a recurring use of utility revenues and exclude the transfers to a capital fund. All -in coverage for the system has ranged from about 1.4x in fiscal 2017 to over 1.6x in fiscal 2018, ending at just under 2.4x in fiscal 2019; the rise in coverage in fiscal 2019 was due to reduced costs associated with some contractual obligations. Based on the system's five-year financial projections, we expect the coverage levels to remain stable within the outlook period. The city has a very strong liquidity position, with unrestricted cash and investments ranging from about $21 million in fiscal 2017 to $16.9 million in fiscal 2018 and finishing fiscal 2019 with slightly over $6.4 million, amounting to roughly 103 days' cash on hand. The drop in liquidity was associated with increased capital investment in the city's drainage system. Management maintains a 25% reserve in the stormwater utility fund. It indicated that it is expecting some further drawdowns of cash, but it also communicated that despite those drawdowns, the available reserves will still comply with the city's formal liquidity policies. The city's five-year CIP has no single flagship project, but is instead a mix of rehabilitation of and improvements to existing infrastructure, both in neighborhoods and along major roadways. The total identified list of projects, however, is large simply because of the size of Fort Worth and the age of some of WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 4 Summary: Fort Worth, Texas; Water/Sewer the infrastructure relative to the growth in the city since it was put in place. The system has just over $151.1 million in debt outstanding when including this issuance. We consider the debt -to -capitalization ratio of the system high at just under 64% leveraged. The city has a five-year CIP for the system amounting to roughly $127.1 million for the period 2021-2025. The funding for the program will be a combination of capital reserves and revenues. Management indicated that the city does anticipate the issuance of additional debt of roughly $70 million in revenue bonds through 2023. This amount includes the $53 million being issued by the series 2020 bonds. Fort Worth administers a citywide plan with separate funds for police, fire, and nonuniformed employees that as of Sept. 30, 2019, was 50.6% funded. We have incorporated into our analysis the city's increasing pension liability and history of not fully funding the actuarially determined contribution. We understand that it has adopted a plan that would bolster contributions from both the city and plan participants, and is predicated on more conservative assumptions, as well as limiting a cost -of -living adjustment to certain recipients. The city's current pension position is viewed as a credit weakness. Based on our FMA, we view the stormwater system as a'2' on a six- point scale, with'1' being the strongest. An FMA of good indicates our view that practices are strong, well embedded, and likely sustainable. Management prepares informal reports of financial activities, which are made available to the City Council, on request, to advise them of the city's financial condition and needs in accordance with the city charter. A five-year financial forecast is updated annually as a part of the budget development process. The city prepares a five-year CIP, which is updated on an annual basis. There is an investment policy in place, and the city maintains a 25% reserve in the stormwater utility fund. It also maintains detailed and codified debt management and investment policies. In addition, management produces annual audited financial statements that comply with generally accepted accounting principles (GAAP). Related Research • Through The ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors, April 28, 2020 Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 5 Copyright © 2020 by Standard & Poor's Financial Services LLC. All rights reserved. No content (including ratings, credit -related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third -party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit -related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating - related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third -party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 8, 2020 6 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable RATING ACTION COMMENTARY Fitch Rates Fort Worth, TX's Drainage Rev BondsAA+'; Outlook Stable Thu 01 Oct, 2020 -12:49 PM ET Fitch Ratings - Austin - 01 Oct 2020: Fitch Ratings has assigned an 'AA+' rating to the following Fort Worth, TX (the city) bonds: --Approximately $100 million drainage utility system (the system) revenue refunding and improvement bonds, series 2020. The bonds will be sold via competitive bid on Oct. 20. Proceeds will be used for various drainage and erosion projects, to refund a portion of the system's outstanding bonds for debt service savings, and pay costs of issuance. In addition, Fitch has affirmed the rating on the following outstanding obligations at'AA+': --$91.5 million outstanding drainage utility system revenue bonds, series 2011 (prerefunding) and 2019; --$15.1 million outstanding drainage utility system revenue refunding bonds, series 2016. Fitch has also assessed the Stand-alone Credit Profile (SCP) of the system at'aa+'. The Rating Outlook is Stable. https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 1 /12 101112020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds 'AA+'; Outlook Stable ANALYTICAL CONCLUSION The affirmation of the'AA+' bond rating and assessment of the SCP at'aa+' reflects the system's stable and very low net leverage, as measured by net adjusted debt -to -adjusted funds available for debt service (FADS), in the context of very strong revenue defensibility and very low operating risk, both assessed at'aa'. Net leverage registered 5.3x in fiscal 2019. Although the ratio is expected to grow slightly over the next few years as the system increases debt issuance and capital spending, Fitch expects leverage to remain between 6.6x and 6.4x - levels supportive of the rating - through 2024. Coronavirus Considerations The recent outbreak of coronavirus and related government containment measures worldwide creates an uncertain global environment for the Water and Sewer sector. While the system's performance through most recently available data has not indicated significant impairment, material changes in revenue and cost profiles are occurring across the sector and are likely to worsen in the coming months. Fitch will monitor developments in the sector as a result of the virus outbreak as it relates to severity and duration. Any revised expectations for future performance and assessment of key risks will be incorporated in future analyses CREDIT PROFILE The system is an enterprise fund of the city of Fort Worth, Texas (I DR, 'AA; Stable) established in fiscal 2006 in response to flash flood problems and federally mandated storm water -runoff and treatment requirements. All owners of developed property in Fort Worth are charged a user fee for drainage service, except those exempted by state law. This includes residential property owners, businesses, apartment complexes, public facilities, city owned facilities and churches. As of fiscal 2020, the system has over 640,000 billable storm water units. The city mayor declared an emergency stay at home order effective March 18, 2020 in response to the outbreak of coronavirus. City management expected to see significant declines in various city revenue streams, particularly sales tax revenues and anticipated a revenue shortfall for fiscal 2020. The stormwater system charges are included with the water and sewer monthly billings. Management has seen some uptick in delinquencies, https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 2/12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable higher than historical averages. The city has resumed standard practices for billing collections and expect the delinquencies to return to historical levels. For the fiscal 2021 budget, the system has conservatively budgeted lower revenue growth compared to its historical returns. Potential revenue shortfalls would likely be addressed with expenditure reductions before capital project spending would be deferred. KEY RATING DRIVERS Revenue Defensibility'aa' Very Favorable Service Area Characteristics, Predictable Revenue Stream. Revenues are received entirely from the system's exclusive right to provide drainage services within its service area. The storm water fee, which in nominal dollars is very low, is fixed and provides a very stable and predictable revenue stream. The city has independent rate -setting authority and system charges are deemed affordable for the vast majority of the population. Wealth levels and area unemployment is on par with the national averages. Operating Risks'aa' Very Low Operating Risk. The storm water system costs are very low and the drainage system generally has limited operations and lacks measured flows. Consequently, Fitch has assessed operating risks at 'aa'. Financial Profile'aa' Very Strong Financial Profile; Low Leverage. https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 3/12 101112020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds 'AA+'; Outlook Stable The system's very strong financial profile reflects its very low leverage ratio of 5.3x in fiscal 2019. Planned capital spending and associated debt issuances are expected to be sufficiently supported, resulting in stable leverage. Additionally, Fitch -calculated coverage of full obligations (COFO) and the liquidity cushion ratio are both neutral to the financial profile assessment, at 2.7x and 127 days, respectively. ASYMMETRIC ADDITIVE RISK CONSIDERATIONS No asymmetric additive risk considerations affected this rating determination. RATING SENSITIVITIES Factors that could, individually or collectively, lead to a positive rating action/upgrade: --Decrease in leverage to a sustained level under 5x through Fitch's base and stress case. Factors that could, individually or collectively, lead to a negative rating action/downgrade: --Significant increase in debt issuance to address capital spending, that increases leverage to a sustained level above 8x through Fitch's base and stress case. BEST/WORST CASE RATING SCENARIO International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best -case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst -case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst -case scenario credit ratings for all rating categories ranges from'AAA to'D'. Best- and worst -case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector - specific best- and worst -case scenario credit ratings, visit [https://www.fitchratings.com/site/re/101 11579]. https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 4/12 101112020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds 'AA+'; Outlook Stable SECURITY The bonds are secured by a first lien on and pledge of the gross revenues of the city's drainage utility system (the system). REVENUE DEFENSIBILITY Revenue defensibility is considered very strong, reflected by the'aa' assessment. All system revenues are derived from monopolistic sources and the system's service area reflects very favorable demographic underpinnings. The service territory is stable with annual population growth of over 1.5% since 2015. The city bills and collects the drainage utility fee monthly with the water and sewer utility charges. Collections are strong, and mirror collections by the water and sewer utility (revenue bonds rated AA/Stable) since the city is authorized to disconnect water service for nonpayment or partial bill payment. Drainage rates were recently increased to $5.75 per equivalent residential unit (ERU) or the equivalent of 6.5%, after remaining at $5.40 since 2011. No additional rate adjustments are expected over the coming five-year period. At the current monthly rate ($5.75), rates are low and remain affordable for a vast portion of the population (about 90%). The system has a very stable and predictable revenue stream, with the system fee determined per dwelling unit charged on the monthly combined utility bill. Nonpayment of any portion of the utility fees results in termination of water service. OPERATING RISKS As a drainage system, the operating risk is assessed at'aa' due to the limited operations and lack of measured flows. The low cost of maintaining the utility assets provides the system with very low operating costs and a high degree of operating and financial flexibility. Pension expense claims 17% of operating costs due to rising pension costs. Recently city council and employees approved a reform pack for the city's single employer pension plan that adjusts benefits, increases both employee and city contributions, along with others https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 5/12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable adjustments. Given current market volatility, coupled with inherent timing lags with pension reporting, Fitch expects that the net pension liability will increase in 2021. The system's lifecycle ratio is favorable at 23% and capex spending has consistently outpaced annual depreciation. The 2021-2025 capital improvement plan totals over $127 million, more than double the $59 million spent on capital from fiscal 2016 - 2020. The city is accelerating its planned capital spending above historical norms to address high priority needs and driven by a significant flooding event in 2018 that resulted in four fatalities. A portion of the current offering plus another anticipated debt issuance around 2024 will provide the majority of the financing to address major drainage, roadway crossing, drainage engineering and rehabilitation projects. FINANCIAL PROFILE The financial profile is very strong and assessed at'aa'. Since 2016, the system's leverage ratio has ranged between 5.2x and 7.8x. Leverage in fiscal 2015 was significantly higher due to large $9.9 million transfers for capital projects; however net leverage without the large transfer registered 8.7x. The liquidity profile is neutral to the assessment with COFO of over 1.3x since 2015 and current days cash on hand declined to 127 days in 2019, down from 386 days in fiscal 2015. The system's declining cash position is a result of continued planned pay -go capital spending. Despite cash balances declining, they are not expected to drop to less than 60 days due to adopted cash balance policies. The city adopted financial policies in fiscal 2015 for city enterprise funds, including a minimum reserve cash policy with a floor of 62 DCOH and a target of at least 150 DCOH. This policy will help ensure cash balances remain adequate. The large degree of discretion with regard to operating expenses of the utility given the lower cost of maintenance of utility assets is a credit strength. Fitch Analytical Stress Test (FAST) The five-year forward look provided by Fitch's FAST considers the potential trend of key ratios in a base case and a stress case. The stress case is designed to impose capital costs 10% above expected levels and evaluate potential variability in projected key ratios. Management forecasts took into consideration a potential revenue reduction in fiscal 2021 due to the on -going pandemic. https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 6/12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable Revenue in the scenario analysis are informed by assumptions provide by the city, including a 10% increase in fiscal 2020 due to the recent rate increase and an uptick in billable ERUs. Fiscal 2021 revenue reflects a 1% coronavirus sensitized assumption, followed by management's expectation of more typical growth patterns of 2% annually. Fitch assumes operating cost growth at 4.4% annually, in line with the three-year historical average. FAST also takes into consideration the system's planned capital spending and $53 million in debt funding as part of the series 2020 bonds proceeds. Additional debt in 2024 was estimated at $17 million per discussions with management. Using these assumptions, leverage under the base case is projected to rise to 6.2x by fiscal 2024, with the stress rate producing slightly higher leverage of 6.6x by fiscal 2024. All scenarios support the current rating. ASYMMETRIC ADDITIVE RISK CONSIDERATIONS No asymmetric additive risk considerations affect the rating. SOURCES OF INFORMATION In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of'3'. This means ESG issues are credit -neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 7/12 10/1 /2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds 'AA+'; Outlook Stable VIEW ADDITIONAL RATING DETAILS FITCH RATINGS ANALYSTS Teri Wenck, CPA Director Primary Rating Analyst +1512 215 3742 Fitch Ratings, Inc. 111 Congress Avenue Suite 2010 Austin 78701 Victor Valdez Analyst Secondary Rating Analyst +1512 813 5650 Dennis Pidherny Managing Director Committee Chairperson +1212 908 0738 MEDIA CONTACTS Sandro Scenga New York +1212 908 0278 sandro.scenga@thefitchgroup.com Additional information is available on www.fitchratings.com APPLICABLE CRITERIA Public Sector, Revenue -Supported Entities Rating Criteria (pub. 27 Mar 2020) (including rating assumption sensitivity) U.S. Water and Sewer Rating Criteria (pub. 03 Apr 2020) (including rating assumption sensitivity) ADDITIONAL DISCLOSURES https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 8/12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds 'AA+'; Outlook Stable Dodd -Frank Rating Information Disclosure Form Solicitation Status Endorsement Policy ENDORSEMENT STATUS Fort Worth JX) DISCLAIMER EU Endorsed ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDI , RATINGS. IN ADDITION, THE FOLLOWING HTTPS://WWW.FITCHRATINGS.COM/RATING- DEFINITIONS-DOCUMENT DETAILS FITCH'S RATING DEFINITIONS FOR EACH RATING SCALE AND RATING CATEGORIES, INCLUDING DEFINITIONS RELATING TO DEFAULT. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE ATALLTIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DI RECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH RATINGS WEBSITE. READ LESS COPYRIGHT Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a https://www.fitchratings.com/research/us-public-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 9112 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable given jurisdiction. The manner of Fitch's factual investigation and the scope of the third - party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre- existing third -party verifications such as audit reports, agreed -upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third -party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward -looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 10/12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO. SOLICITATION STATUS The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below. ENDORSEMENT POLICY Fitch's approach to ratings endorsement so that ratings produced outside the EU may be used by regulated entities within the EU for regulatory purposes, pursuant to the terms of the EU Regulation with respect to credit rating agencies, can be found on the EU Regulatory Disclosures page. The endorsement status of all International ratings is provided within the entity summary page for each rated entity and in the transaction detail https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 11 /12 10/1/2020 Fitch Rates Fort Worth, TX's Drainage Rev Bonds'AA+'; Outlook Stable pages for all structured finance transactions on the Fitch website. These disclosures are updated on a daily basis. US Public Finance Infrastructure and Project Finance North America United States https://www.fitch ratings.com/research/us-pu bl ic-finance/fitch-rates-fort-worth-tx-drainage-rev-bonds-aa-outlook-stable-01-10-2020 12/12