Rating Action: Moody's assigns initial Baa3 to Kaufman County FWSD 6, TX's Ser. 2020 GOULTs; outlook stable

Global Credit Research - 13 Aug 2020

New York, August 13, 2020 -- Moody's Investors Service has assigned an initial Baa3 rating to Kaufman County Fresh Water Supply District 6, TX's approximately $1.8 million Unlimited Tax Utility Bonds, Series 2020 and approximately $3 million Unlimited Tax Road Bonds, Series 2020. Concurrently, we assigned a stable outlook.

RATINGS RATIONALE

The Baa3 rating reflects the district's small but rapidly growing tax base and a healthy financial position given its limited operating history. The district is located favorably near major employment centers and the region appeals to many homeowners for its low cost of living. The rating also incorporates the district's elevated debt burden with additional debt plans balanced by the lack of pension and other post-employment benefit (OPEB) liabilities. Governance is a key rating factor to determine this initial rating action. Though it has no active employees, which is typical of the sector, the district contracts for all necessary services including water and sewer operations. Additionally, the Texas Commission on Environmental Quality (TCEQ) has strong oversight over the sector and monitors compliance with state laws, bonds issuances, and board appointments, among other things.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. We do not see any material immediate credit risks for the district, given that a majority of its revenues are derived through property tax. Any possible volatility in the housing market would not reflect in taxable values until at least fiscal year 2021, giving the district ample headway to make operational changes. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the district changes, we will update our opinion at that time.

RATING OUTLOOK

The stable outlook reflects our expectation that the tax base will continue to grow and reserves will remain sound given conservative budgeting. The outlook further reflects our expectation the district's debt burden will remain elevated yet consistent with peers.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Continued rapid tax base growth

- Materially improved and scaled financial operations and reserves

- Significant decrease in debt burden

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Tax base contraction

- Operational imbalance leading to erosion of reserves

- Increase to the debt burden absent corresponding taxable value growth

LEGAL SECURITY

Principal and interest on the Bonds of each series are payable from the proceeds of two separate continuing direct annual ad valorem taxes, levied upon all taxable property within the District without legal limitation as to rate or amount.

USE OF PROCEEDS

Proceeds from the sale of the Utility Bonds will be used to reimburse the Developers for a portion of the remaining costs for the water, wastewater, and drainage improvements and grading for Vintage Meadows Phase 1; and land costs and Talty connection fees for Lakewood Trails Phase 1.

Proceeds from the sale of the Road Bonds will be used to reimburse the Developers for road improvements for drainage and earthwork for Vintage Meadows Phases 2 and 3; a portion of the paving for Lakewood Trails Phase 1; engineering and testing for infrastructure in Vintage Meadows Phases 1 through 3, as well as land costs for Lakewood Trails Phase 1.

PROFILE

The District is a political subdivision of the State of Texas, located in Kaufman County, approximately 20 miles east of the City of Dallas bordered Interstate 20 and High Country Lane. The District is located in the Forney Independent School District. All of the land within the District is within the extraterritorial jurisdiction of the City of Forney. The District contains approximately 330 acres.

METHODOLOGY

The principal methodology used in these ratings was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Samantha Krouse Lead Analyst Regional PFG Dallas Moody's Investors Service, Inc. Plaza Of The Americas 600 North Pearl St. Suite 2165 Dallas 75201 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Chandra Ghosal Additional Contact Municipal Supported Products JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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