Fitch Affirms North Sumter County Utility Dependent

District, FL's Utility & Sub Revs

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NEW YORK--(BUSINESS WIRE)--Fitch
Ratings affirms the following ratings for
North Sumter County Utility Dependent
District, FL's revenue bonds:
--Approximately $155 million outstanding
utility revenue bonds at 'A'.
--Approximately $19 million subordinate
utility revenue bonds at 'A-'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by a pledge of (and lien upon) the net revenues of the system and connection
fees. The subordinate bonds have a second lien on these revenues.
KEY RATING DRIVERS
Stable Residential Customer Base: The North Sumter County Utility Dependent District (NSCUDD,
or the district) serves a portion of the large master-planned retirement community known as 'The
Villages' in Central Florida. The customer base is mostly residential and stable, and the district is
nearing full build-out.
Slim Financial Margins Expected: Debt service coverage was strong in fiscal 2011; however, annual
debt service will increase significantly beginning in fiscal 2012, which will lower coverage to
previously forecasted and adequate levels of roughly 1.2x on the senior bonds, and 1.1x for all
bonds. The one-notch rating distinction reflects the slim overall coverage and a lien and pledge of
the revenues that is superior for the senior lien bonds.
Affordable Rates, Strong Liquidity: Rates remain affordable, providing management with solid rateraising and financial flexibility, and helping to offset the low expected debt service coverage
margins. Strong cash flows generated in fiscal 2011 have allowed the district to accumulate over
570 days of cash on hand by fiscal year-end 2011.
High Debt Burden: The district's debt profile remains high, mainly as a result of the system
acquisition by NSCUDD in early 2011. With limited capital needs expected, debt ratios should
moderate some over time.

CREDIT PROFILE
STABLE CUSTOMER BASE
NSCUDD is an independent municipal entity created in 2010 to purchase two privately-owned
existing utility systems, the North Sumter Utility Company, LLC (NSU) and The Villages Water
Conservation Authority, LLC (VWCA; together known as the system).
The system consists of a potable water and sewer utility and a separate irrigation system that
essentially serve the same stable residential customer base. The system's 7,700-acre service area
contains roughly 22,000 accounts and serves a portion of the master-planned retirement community
known as 'The Villages'. The Villages is a large, wealthy retirement community covering 21,500
acres and roughly 43,000 residential units in central Florida. With several thousand new homes
completed over the past two years, the NSCUDD service area is approaching build-out.
SOLID GOVERNANCE STRUCTURE
additional hints
A five-member board of directors, initially appointed by Sumter County, provides oversight and
policy planning for the system. Once the initial terms expire, the board will consist of members
elected from within the system's service territory. Through a written agreement with NSCUDD,
system management is provided by a separate and independent special district with experience
providing management, accounting, customer service, and billing services to other utilities and
community development districts within 'The Villages', known as Village Center Community
Development District (VCCDD).
Fitch deems system management to be stable and competent, and oversight with board members
eventually elected from within the service area to be a solid structure. Utility operations and
maintenance are separately administered via contractual arrangement with an experienced
operator.
Fitch believes NSCUDD's independent governance structure insulates it from a recent tentative IRS
finding that VCCDD is not a 'political subdivision' of the state, and therefore bonds issued by VCCDD
are not tax exempt, because a controlling portion of the VCCDD governing board was elected by a
single property owner. NSCUDD is an independent municipal entity with board members that were
initially appointed by Sumter County when created in 2010, but will be elected from the electorate
after initial terms expire.
SYSTEM INFRASTRUCTURE IS RELATIVELY NEW
The system consists of the potable water and wastewater system, and the irrigation system. The
potable water system includes water production, treatment, and distribution facilities, and Fitch
views the overall system capacity to be solid. Raw water is supplied locally through groundwater
supply wells from the Floridan Aquifer. The district's three interconnected water treatment facilities
have a combined capacity to treat up to 11.5 million gallons per day (mgd), which compares very
favorably to the average demand in 2011 of 2.7 mgd.
The wastewater system consists of over 160 miles of gravity sewer, 33 miles of force mains, and one
treatment facility. The treatment plant has 3.5 mgd maximum day capacity compared to the 1.7 mgd
of average daily demand. The irrigation system is a combined irrigation and fire protection system

with water supplied from stormwater runoff, as well as from the lower Floridan Aquifer through
wells and pump stations, 250 miles of irrigation mains, and several lined retention basins to capture
stormwater.
Water use permits for both the potable system and the irrigation system are regulated by the
Southwest Florida Water Management District and are valid through 2017. Current potable supplies
are expected to be sufficient for the long-term. Overall, the system is relatively new with limited
rehab challenges expected in the near to intermediate term.
HIGH DEBT BURDEN REMAINS A CREDIT RISK
The system's debt burden remains high but is on the decline. Debt per customer was over $3,900 in
fiscal 2011, which is more than 50% greater than the median for the rating category (roughly
$2,200). Debt relative to net plant is also high at 150%, which is about 2x the rating category
median, and annual debt service is a high 58% of projected fiscal 2013 gross system revenues.
While the debt burden should decline as the area matures, debt amortization is somewhat slow,
leaving longer-term debt ratios higher than similarly rated entities for the foreseeable future. On the
positive side, system capital needs are limited and are expected to be funded from cash and other
internal sources.
AFFORDABLE RATES, SOLID LIQUIDITY
Financial results were solid in fiscal 2011 with debt service coverage approaching 2.0x, and excess
free cash flow (measured as net revenues remaining after payment of O&M and debt service) of
roughly $6 million. However, financial performance is expected to be modest on a going forward
basis as the district begins to fully amortize the debt. Annual debt service increased from about $6
million in 2011 to over $10.6 million in fiscal 2012, resulting in a rather significant decline in debt
service coverage, which was expected.
Total debt service peaks in fiscal 2018 at $11.9 million, but is level thereafter. Coverage of maximum
annual debt service is 1.2x from 2012 operations, and projected to be about 1.0x from 2013 results.
The district's affordable rates and independent rate-making authority temper concerns of slightly
rising debt service costs over the next several years.
Financial margins are projected to provide coverage of annual debt service for the senior bonds
close to the rate covenant required 1.20x level. Similarly, coverage of the senior and subordinate
debt service combined is expected to be about 1.1x. Fitch views these levels to be modest but
sufficient given the moderate rate structure and strong liquidity.
Strong liquidity results mainly from significant excess cash flow from fiscal 2011 results. Fitch
expects liquidity to remain close to fiscal 2011 levels as capital needs are limited and expected to be
funded from the roughly $1 million in expected excess annual cash flow from operations.
Rates are affordable, comparing favorably to those of neighboring utilities. Rates for all three
services are structured with a base fee and consumption charges. The combined average monthly
residential bill for all three services is roughly $62 for 3,000 gallons of potable water use and 9,000
gallons of irrigation in 2012, which is a moderate 1.7% of median household income. The district has
independent rate-setting authority and, if necessary, can implement additional rate increases beyond
the already approved 2.5% annual rate indexing for the next 8 years.

Additional information is available at 'www.fitchratings.com'. Final draft attached. Please submit for
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In addition to the sources of information identified in Fitch's U.S. Municipal Revenue-Supported
Rating Criteria, this action was additionally informed by information from Creditscope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria' (June 12, 2012);
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (Aug. 3, 2012);
--'2012 Water and Sewer Medians' (Dec. 8, 2011);
--'2012 Sector Outlook: Water and Sewer' (Dec. 8, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
U.S. Water and Sewer Revenue Bond Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684901
2012 Water and Sewer Medians
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657111
2012 Outlook: Water and Sewer Sector
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657110
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http://thevillagesflorida.us/