Clark County Water Reclamation District, Nevada; General Obligation

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1 October 8, 2008 Clark County Water Reclamation District, Nevada; General Obligation Primary Credit Analyst: Le T Quach, San Francisco (1) ; le_quach@standardandpoors.com Secondary Credit Analyst: Paul Dyson, San Francisco (1) ; paul_dyson@standardandpoors.com Table Of Contents Rationale Outlook Wastewater System Local Economy - Growing But At Reduced Levels Financial Management Assessment (FMA): 'Strong' 1 Standard & Poor's. All rights reserved. No reprint or dissemination without S&P's permission. See Terms of Use/Disclaimer on the last page

2 Clark County Water Reclamation District, Nevada; General Obligation Credit Profile US$250. mil GO Lmt Tax wtr Reclam bnds ser 2008 due 07/01/2038 Long Term Rating AAA/Stable New Clark Cnty Wtr Reclamation Dist GO bnds (ltd tax) ser 2007 Long Term Rating AAA/Stable Upgraded Clark Cnty Wtr Reclamation Dist ltd tax go rfdg bnds ser 2003 dtd 04/01/2003 due 07/01/ Unenhanced Rating AAA(SPUR)/Stable Upgraded Many issues are enhanced by bond insurance. Rationale Standard & Poor's Ratings Services raised its rating and underlying rating (SPUR) to 'AAA' from 'AA+' on Clark County Water Reclamation District, Nev.'s series 2003 and series 2007 limited-tax general obligation (GO) bonds. In addition, Standard & Poor's assigned its 'AAA' rating to the district's series 2008 limited-tax GO bonds. The raised ratings reflect the district's continued strong financial performance and very strong liquidity position. The rating also reflects the district's: Growing service area economy that includes the Las Vegas Strip, with good income levels; Strong projected coverage levels; and Very strong liquidity position, with cash and unrestricted investments equaling about seven years of cash on hand. The bonds are secured by the district's limited tax GO pledge, subject to the limit on overlapping tax rates of $3.64 per $100 of assessed value (AV). The bonds are additionally secured by a pledge of net system revenues, and the district has historically not levied an ad valorem tax because pledged revenues have been sufficient to pay debt service on all the district's bonds and obligations; however, in any year in which those revenues are insufficient to pay debt service, the district is obligated to levy ad valorem taxes to pay debt service. The Clark County Water Reclamation District provides wastewater treatment services to 212,226 predominantly residential customer accounts in unincorporated portions of Clark County, including the Las Vegas Strip, and the communities of Blue Diamond, Indian Springs, Laughlin, Overton, and Searchlight. The system's customer base has exhibited strong growth over the past few years, increasing at an average annual rate of 7.6% since fiscal There is no customer concentration; the 10 leading customers provide about 11% of operating revenues in fiscal 2008 (unaudited). The district's board comprises members of the Clark County Board of Commissioners and sets sewer rates after a public hearing. The district recently approved annual rate increases of about 6% through Wastewater rates remain competitive nationally at about $15.83 a month. Customers are billed annually for sewer service with an option to pay annually, semiannually, or quarterly. Delinquent payments serve as a lien on property and are billed Standard & Poor s RatingsDirect October 8,

3 Clark County Water Reclamation District, Nevada; General Obligation through the property tax collection process. As such, collections have been historically strong and delinquency rates have been low. The capital improvement plan (CIP) for fiscals is large, totaling $1.3 billion, primarily providing for upgrades to existing infrastructure and growth-related expansions as well as required federal and state improvements. The CIP will be funded primarily through debt issuances. The district plans to issue $398 million in new limited-tax GO debt in 2009, $437 million in 2010, and $120 million in The district's financial performance has been strong. Annual debt service coverage from pledged revenues has ranged from 6.9x to 36.3x since fiscal Based on the district's fiscal 2009 budget, annual debt service coverage is projected to be 4.3x. System growth throughout the service area has resulted in strong connection fee revenues averaging $63 million since fiscal 2004, which supported the district's build-up of strong cash reserves. The district's liquidity position is very strong, with 2,440 days' cash in fiscal 2008 (unaudited). Outlook The stable outlook reflects our expectation that the district's strong operating and financial position will continue, coupled with ongoing management of the CIP. Approved multiyear rate increases are expected to offset rising debt service costs associated with planned future debt issuance. Wastewater System The district's sewer service area covers about 100 square miles, including the Las Vegas Strip. In addition to the large hotels/casinos served by the main system, the district also operates sewer service facilities for the towns of Overton, Laughlin, Searchlight, Blue Diamond, and Indian Springs. The customer base is overwhelmingly residential (96% of total accounts), and there is no customer concentration. In fiscal 2008, the 10 leading users accounted for just 11% of operating revenues. The total number of accounts has increased at an annual rate of 8% since fiscal Given the current housing slowdown evident in Clark County and nationally, the number of new sewer connections has slowed. However, some construction projects are still underway on Clark County's Las Vegas Strip, including expansions of existing casinos and the development of new residential condominiums and retail spaces. The main treatment plant has 106 million gallons per day (mgd) of treatment capacity to meet average daily flows of 97 mgd. Plans are to increase average daily treatment capacity to 160 mgd within the next five years. In addition, an average of 7.5 mgd of effluent water is reclaimed for irrigation and industrial uses. Local Economy - Growing But At Reduced Levels District AV has increased at an average annual rate of 24% since fiscal 2005 to reach $59.8 billion in fiscal The district represents 53% of Clark County's fiscal 2009 total AV. Including this issuance, overall debt within the district on a per capita basis is moderate at $3,383 but low as a percent of market value at 1.7%. Clark County had a 2007 population of 1.98 million; since 2000, the population has grown 44% from 1.37 million. Of the state's 2.7 million residents, 73% live in Clark County. The Las Vegas-Clark County metropolitan area has long been a draw for new residents and homebuilders, leading to property values that rose dramatically and peaked in late 2006, due partly to speculation and increased access to borrowing in the residential real estate market. This 3

4 Clark County Water Reclamation District, Nevada; General Obligation has led to a currently stagnant residential real estate market, with rising foreclosures and evidence of falling prices. In recent years, property values reached heights that have proven unsustainable, as median new sales prices have fallen 41% from the peak in August Some construction activity is continuing on the Las Vegas Strip, which is home to many large casino-hotel complexes. Income indicators for the county are good, with median household effective buying income measuring 109% of the nation in Financial Management Assessment (FMA): 'Strong' Clark County Water Reclamation District's management practices are considered to be 'strong' under Standard & Poor's Financial Management Assessment (FMA). In our framework, an FMA of 'strong' indicates that practices are strong, well embedded and likely sustainable. The county uses multiple internal and external sources to build its budget and incorporates derived trends into its long-term financial and capital plans, which are updated yearly. Budgets are also reviewed monthly by its board. The county has an adopted debt management policy that prescribes the size of debt burden, debt limits, and circumstances for using debt. In addition, the district maintains several designated, unrestricted reserves including an operating reserve equal to 90 days' of the previous year's operations & maintenance (O&M) expenditures. The district also has a policy to maintain a capital contingency reserve equal to 12 months of total budgeted capital repair and replacement. As of July 1, 2008, the balance of this account was $127 million. The district has a policy to maintain a capital expansion contingency reserve that is set aside in the event of an unanticipated need for capital expansion. The reserve amount is equal to 12 months' budgeted capital expansion projects and as of July 1, 2008, the balance of this account was $138 million. The district also maintains a budget stabilization reserve (equal to 5% of current budgeted O&M expenditures). The district has established an other post-employment fund and in fiscal 2008 began depositing its annual required contribution of $1.4 million into the fund. Standard & Poor s RatingsDirect October 8,

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