The 'A-' rating reflects the strength of the combined utility pledge, consistent and solid financial metrics, a stable power supply from Lower Colorado River Authority (LCRA), and ample long-term water supplies. Credit concerns include the small system's below average economic indicators and moderate customer concentration. Additionally, the city will need to replace its power supply agreement with LCRA which expires in 2016 (due for renewal in 2011). The city is currently in the process of reviewing power supply options, including LCRA.

The system, which has less than 8,000 electric accounts, has maintained consistent financial metrics evidenced by debt service greater than 3.0 times (x) and cash reserves of 80 days or greater. The majority of Seguin's power is supplied by a favorable long-term take-and-pay contract with LCRA (rated 'A+' with a Stable Outlook by Fitch). The balance of power is purchased from San Antonio's CPS Energy (rated 'AA+' with a Stable Outlook by Fitch). Seguin is in the process of considering future contracts, which could impact Seguin's cost structure and risk profile.

The water supply from the Schertz-Seguin Local Government Corporation (rated 'A' with a Stable Outlook by Fitch) provides sufficient water to meet the city's long-term needs, and excess water that is not used by Schertz or Seguin is sold through long-term contracts to neighboring cities. The water system has a high proportion of unaccounted for water (29%), which it expects to resolve shortly through the installation of improved meters.

Regional wealth indicators are below average; median household income levels are 76% of the national average and the poverty rate is a high 18%. Unemployment in the county (Guadalupe) has remained a relatively low 5.5% as of April 2009 due in part to local economic growth, including a new Caterpillar plant (will not be an electric customer) that recently broke ground in Seguin.

There is moderate customer concentration; Tyson Foods, Inc. comprises 5.6% of combined revenues and the top 10 electric and water customers comprise 27% and 29% of system revenues, respectively. The concentration is somewhat offset by the diversity of employers and industries, including Continental AG (auto), Hexcel Corp. (aircraft components) and Texas Lutheran University (higher education).

Seguin Utilities is municipally owned and city-council governed utility system that services less than 8,000 customers in the city of Seguin (general obligation bonds rated 'A+' with a Stable Outlook by Fitch). The city is located approximately 35 miles east of San Antonio.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. 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.

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