PUBLIC FINANCE

Hamilton County, Ohio

Greater Cincinnati Metropolitan Sewer District
Primary Credit Analysts: Credit Profile
Helen Samuelson
US$156.1 mil swr sys imp rev bnds (Greater Cincinnati Metro Swr Dist) ser 2009A due 12/01/2034
Chicago
(1) 312-233-7011 Long Term Rating AA+/Stable New
helen_samuelson@
standardandpoors.com US$. mil taxable swr sys imp rev bnds Build America Bnds (Greater Cincinnati Metro Swr Dist) ser
Secondary Credit Analysts: 2009B due 12/01/2034
John Sauter Long Term Rating AA+/Stable New
Chicago
(1) 312-233-7027 Greater Cincinnati Metro Swr Dist swr sys imp rev bnds (Hamilton Cnty) ser 2000A dtd 06/01/2000 due
john_sauter@ 12/01/2001-2020 2025
standardandpoors.com
Unenhanced Rating AA+(SPUR)/Stable Upgraded
Greater Cincinnati Metro Swr Dist swr sys imp rev bnds (Hamilton Cnty) ser 2000A dtd 06/01/2000 due 12/01/2001-2020 2025
Unenhanced Rating AA+(SPUR)/Stable Upgraded

Hamilton Cnty, Ohio

Greater Cincinnati Metro Swr Dist, Ohio
Hamilton Cnty (Greater Cincinnati Metro Swr Dist) swr sys imp rev bnds (Greater Cincinnati Metro Swr Dist) ser 2005B dtd
10/01/2005 due 12/01/2006-202
Unenhanced Rating AA+(SPUR)/Stable Upgraded
Hamilton Cnty (Greater Cincinnati Metro Swr Dist) util
Long Term Rating AA+/Stable Upgraded
Hamilton Cnty (Greater Cincinnati Metro Swr Dist)
Unenhanced Rating AA+(SPUR)/Stable Upgraded
Hamilton Cnty/Greater Cincinnati Metro Swr Dist (FGIC) (National)
Unenhanced Rating AA+(SPUR)/Stable Upgraded

RatingsDirect Many issues are enhanced by bond insurance.

Publication Date
Aug. 7, 2009
 Hamilton County, Ohio
Greater Cincinnati Metropolitan Sewer District

Rationale
Standard & Poor’s Ratings Services has raised its ratings on sewer system revenue bonds issued by
Hamilton County and Greater Cincinnati Metropolitan Sewer District, Ohio, to ‘AA+’ from ‘AA’,
based on the system’s positive financial credit characteristics. The county’s sewer system improvement
revenue bonds series 2009A and taxable sewer system improvement revenue bonds (Build America
Bonds) series 2009B, issued for the Greater Cincinnati Metropolitan Sewer District, have been rated
‘AA+’.
In our opinion, the system’s positive characteristics include its:
ƒ Diverse customer base located in the large Cincinnati, Ohio metropolitan area economy;
ƒ History of strong debt service coverage and liquidity of more than two years’ cash on hand;
ƒ Consistent demonstration of management’s ability to address capital needs while maintaining stable
financial performance and coverage levels; and
ƒ Articulated multiyear rate increases.
In our opinion, the rating is offset by a significant capital program and high rates.
A pledge of net revenues of the system secures the bonds. We understand that the system is
considering issuing a portion of the total par of $156.1 million as series 2009B, federally taxable Build
America Bonds, pursuant to the American Recovery and Reinvestment Act of 2009. The Build America
Bonds subsidies will be available for either operational or debt service needs of system.
Greater Cincinnati Metropolitan Sewer District operates the sewer system, which serves substantially
all of Hamilton County and small parts of Warren and Clermont counties. The service area includes
the city of Cincinnati (GO rating ‘AA+’) and has a total estimated service population of more than
600,000 in its 290-square-mile territory. The economy is characterized by a diverse industrial base that
is also experiencing growth in biotechnology, financial services, and health care. The city’s
unemployment rate increased to 8.8% in May 2009 from 6.1% in 2008. The county’s median
household income is a good 94% and 108% of state and national levels, respectively.
The customer base is diverse: The 10 leading sewer customers accounted for just 5.1% of fiscal 2008
sewer revenues. The system’s financial position remains strong. The system reported $266.4 million of
cash and investments, or a strong 990 days’ operating expenses, at fiscal year-end 2007. Fiscal 2007
net revenues provided strong 1.89x coverage of annual debt service on revenue bonds, while fiscal
2008 net revenues provided strong 1.96x coverage of annual debt service on revenue bonds and 1.81x
coverage of combined annual debt service on all debt, including outstanding general obligation and
other system debt. Management projects 2009 net revenues of $118.2 million, which would provide
1.70x revenue bond coverage and 1.66x maximum annual debt service (MADS) coverage. MADS
occurs in 2011, and 2008 net revenues provided coverage of 1.64x. Management projects that revenue
bond debt service coverage will remain at or above 1.68x and that overall debt service coverage will
remain above 1.58x through 2013.
A residential monthly combined utility bill is $79.55 for 7,500 gallons consumed; the sewer portion
is $56.64. The system has historically adopted annual incremental rate increases to avoid sharp
increases. The system monitors revenue needs closely and bases rate increases on biennial rate studies.
The current five-year capital improvement program (CIP) (2009-2013) totals $913.2 million of
projects. The CIP indicates projects totaling roughly $200 million annually, and issuance of $110
million to $135 million annually, through 2013. The goals are to continue funding its conditionally
approved “Wet Weather Improvement Plan,” which fulfills the requirements of the consent decrees.

Standard & Poor’s | ANALYSIS 2

 Hamilton County, Ohio
Greater Cincinnati Metropolitan Sewer District

The consent decrees address sanitary sewer overflows, combined sewer overflows, the wastewater
treatment plants, and basement backups. Management is implementing the plan in two phases. The
first phase is already underway, and management has completed $300 million of projects out of a total
$1.146 billion. Management estimates that the second phase will cost roughly $2 billion. We are told
the implementation plans stemming from the consent decrees are flexible toward plan alterations and
projects and are sensitive to bond covenants. We note that the city of Loveland, Ohio has filed suit
against the district in its efforts to terminate its agreement and have the district transfer operation and
control of one treatment plant, which treats approximately 3% of the sewage treated by the district.
The federal court has set a June 2010 trial date and directed the parties to start formal mediation in late
2009.

Outlook
The stable outlook reflects our expectation that, in the face of large future borrowing needs arising
from the consent decrees, the district will set rates in a manner that will provide continued strong
coverage levels and liquidity. We also expect that rising rates will not hamper the district’s ability to
continue to raise rates as needed to support the CIP and that the district will stay on track with its
required capital improvements under the consent decrees.

Legal Provisions
The system’s additional bonds test requires 125% historic MADS coverage of revenue bonds and
sufficient coverage on all outstanding obligations or that net revenues for the next two forecasted fiscal
years be equal to 130% MADS coverage of revenue bonds and 105% coverage of all outstanding
obligations. Given the lower MADS coverage levels, the system will need to rely on annual rate
increases to maintain adequate levels. The rate covenant calls for annual net revenue sufficient to
provide for 125% of the annual debt service requirements on the bonds. If the surplus account balance
is greater than 10% of aggregate principal outstanding on all bonds and obligations, then net revenues
could be as low as 110% of debt service.

Management Structure
The district was formed as a partnership between the city of Cincinnati and Hamilton County. The
partnership agreement runs through 2018. Under the agreement, the board of county commissioners
establishes rates and approves the budget and CIP, among other things. The county has designated the
city as the sole managing agent of the system. The current agreement is set to expire before the final
maturity of the system’s outstanding debt. County officials tell us they plan to begin discussions about
the agreement in late 2009. We are told that both the city and county officials will complete
negotiations in a manner that will not disrupt operations.

Operations
The system serves 6,455 commercial and industrial accounts and more than 222,000 residential and
multifamily accounts spread over 290 square miles. The collection system includes roughly 3,000 miles
of sanitary and combined sewers. Facilities to handle the sewage flow include seven wastewater
treatment plants, with a design capacity of 206 million gallons daily (mgd). In 2008, the system
averaged 184 mgd and treated a total of 67 billion gallons.

www.standardandpoors.com 3
 Hamilton County, Ohio
Greater Cincinnati Metropolitan Sewer District

Related Research
USPF Criteria: “ Standard & Poor’s Revises Criteria For Rating Water, Sewer, And Drainage Utility
Revenue Bonds,” Sept. 15, 2008

Standard & Poor’s | ANALYSIS 4

 Hamilton County, Ohio
Greater Cincinnati Metropolitan Sewer District

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