Fitch Ratings assigns an 'AA-' underlying rating to the District of Columbia Water and Sewer Authority's (WASA, or the authority) approximately $300 million public utility senior lien revenue bonds, series 2009. The bonds are scheduled for negotiated sale the week of January 26. Bond proceeds will primarily finance capital improvement projects as well as refund outstanding commercial paper. Fitch also affirms the 'AA-' rating on WASA's $248.7 million of outstanding parity bonds and the 'A+' rating on $695 million of outstanding public utility subordinate lien revenue bonds. The Rating Outlook is revised to Positive from Stable.

The ratings reflect the strength and stability of WASA's vast and diverse service area, its strong capital planning efforts and financial management. The authority continues to retain flexibility in the form of rate capacity and ample reserves, and proven ability to raise revenues sufficiently to fund ongoing regulatory mandates and environmental challenges. The Outlook revision to Positive reflects primarily WASA's continued progress in addressing its costly capital improvement plan (CIP) while maintaining a favorable financial position. Fitch believes the successful reduction over the last several years of delinquent accounts and water loss, as well as the authority's demonstrated ability to outperform financial projections are also positive indicators. Consideration of a rating upgrade will depend upon WASA's ability to manage the size and scope of an already very large CIP and continue meeting regulatory mandates. Also critical to a rating upgrade will be some evidence that the current economic recession and state of the regional housing market will not adversely impact revenue collections, the ability of the authority to implement sizeable rate increases included in the financial forecast, and its overall financial profile.

The revenue bonds now offered are secured by a senior lien on net revenues of the authority and are on parity with a small amount borrowed from the U.S. Treasury for water supply improvements at the Washington Aqueduct. Outstanding subordinate lien revenue bonds are on parity with repayment of WASA's share of debt issued by the federal government and the Washington Suburban Sanitary Commission to build backup water supply reservoirs, as well as debt service on District of Columbia general obligation bonds assumed by WASA upon its creation in 1996.

WASA continues to face regulatory issues common among older, major metropolitan water and sewer utility systems.