2010 US Water & Sewer Outlook is Stable

Despite concerns related to the current economy and longer-term industry-wide capital pressures, Fitch Ratings' outlook for the U.S. municipal water and sewer systems is stable. Fitch says the sector remains strong overall and should sustain its stability through the year, although the influence of the current operating environment will continue to vary among U.S. regions and on a credit-by-credit basis.

'Most systems exhibit more than sufficient financial flexibility,' said Doug Scott, Managing Director at Fitch. However, he cautions that 'political willingness to raise rates is perhaps the greatest threat to sector financial stability over the near term.'

Fitch's assessment for continued sector performance in 2010 relies on three elements: water and sewer systems' high essentiality and related inherent strong collection ability; the financial flexibility with which many systems entered the recession; and historical ability to cope with massive capital needs.

The long-range sector concerns continue to stem from significant capital needs to address aging infrastructure, changing environmental regulations, and growth demands. With immediate growth pressures diminished, capital needs have declined somewhat over the last couple of years. However, sizeable borrowing will continue to be needed, which ultimately could soften the sector's currently healthy financial metrics.

Fitch plans to host a teleconference in the coming weeks to discuss in detail its 2010 outlook for the water and sewer sector along with its medians report, which will be published later this month. The '2010 Water and Sewer Sector Outlook' is available at www.fitchratings.com.