Fitch Ratings has affirmed the 'AA-' rating on the following obligations issued by DeKalb County, Georgia (the county):

\--Approximately $90 million water and sewerage revenue refunding bonds (second resolution), series 2013;

--Approximately $59.9 million water and sewerage revenue refunding bonds (second resolution), series 2015.

Fitch has also assessed the county's water and sewer system's (the system) Standalone Credit Profile (SCP) at 'aa-'. The SCP represents the credit profile of the system on a stand-alone basis irrespective of its relationship with, and the credit quality of, the county (Issuer Default Rating AA/Stable).

The Rating Outlook is revised to Stable from Negative.

ANALYTICAL CONCLUSION

The 'AA-' bond rating and 'aa-' SCP assessment reflect the system's moderate financial leverage in the context of its strong revenue defensibility and low operating risk profile, both assessed as 'aa'. The Outlook revision to Stable from Negative reflects stronger than anticipated fiscal 2020 financial results amid the coronavirus pandemic, as well as the expectation for leverage to remain moderate and supportive of the rating despite increasing capital needs funded by additional debt. Further, the revision in Outlook considers the 2021 settlement of the county's consent decree modification with the Environmental Protection Agency (EPA), which should provide the county with greater long-term financial and operational certainty.

Fiscal 2020 leverage (calculated as net adjusted debt to adjusted funds available for debt service [FADS]) of 6.5x remained solid and approximated leverage levels over the prior two years. The system maintains very strong revenue defensibility, with favorable service area characteristics, reflective of its service area adjacent to the city of Atlanta (the city), and improving affordability. The system's very low operating risk profile reflects a very low operating cost burden and moderate life cycle ratio supported by robust capex.

The system's five-year, $1.2 billion capital improvement program (CIP) is nearly 50% greater than the prior five years of spending due to the onset of work to comply with a consent decree mandating the reduction of sanitary sewer overflows. The addition of nearly $851 million in new debt over the next five years, amid ongoing rate increases, is expected to drive leverage to around 7.8x in Fitch's stress case scenario by fiscal 2025. The longer-term, 10-year CIP totals $2.6 billion, underlying Fitch's expectations that leverage will approximate 8x longer-term, assuming continuation of the historical rates of capital spending, debt issuance and rate increases. Fitch's scenario analysis assumes a 100% execution rate of the system's CIP to account for consent decree compliance construction activity that is already underway.

CREDIT PROFILE

DeKalb County is one of Georgia's largest counties, located immediately east of the city within the Atlanta-Sandy Springs-Roswell, GA metropolitan statistical area (MSA) with an estimated population of approximately 765,000 in 2020. The area economy is very diverse and particularly well-represented by the professional and business services sector and trade and transportation, leveraging the resources of a well-trained and educated workforce and vast network of transportation assets anchored by the Hartsfield-Jackson International Airport.

The system's service area comprises almost the entire 268 square miles of the county with the exception of a small number of residents of the city that are located in the county. Most development in this built-out service area is related to infill projects. The system provides retail service to around 199,000 and 172,000 metered water and sewer connections, respectively.

Fitch considers the system to be a related entity to the county for rating purposes given the county's oversight of the system, including the authority to establish rates and control operations. The credit quality of the county does not currently constrain the bond rating. However, as a result of being a related entity, the issue ratings could become constrained by a material decline in the general credit quality of the county.

Coronavirus Considerations

The system's most recently available performance data does not reflect financial and operational impairment from the pandemic.

KEY RATING DRIVERS

Revenue Defensibility 'aa'

The system is a monopolistic provider of water and sewer services in an area with midrange growth, income, and unemployment characteristics. The cost of service should remain affordable for the majority of the county's population even with planned rate increases.

Operating Risks 'aa'

Very Low Operating Cost Burden and Life Cycle Ratio

The overall operating cost burden of about $5,600 per million gallons (mg) of water and sewer treated is very low and should remain relatively stable. Similarly, heightened near-term expected capital investment should maintain a favorable life cycle ratio.

Financial Profile 'aa'

Debt-Funded Capital Spending to Result in Increased Leverage.

 Additional borrowings, including a Water Infrastructure Finance and Innovation Act (WIFIA) loan, additional revenue bonds and state revolving fund (SRF) loans will cause leverage to increase over the next five years but remain consistent with the 'aa' assessment.

Asymmetric Additive Risk Considerations

No asymmetric additive risk considerations affected this rating determination.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to a positive rating action/upgrade/stabilization of the rating:

--Maintenance and peaking of leverage below 7x in Fitch's base and stress case scenarios in the context of 'aa' revenue defensibility and operating risk assessments.

Factors that could, individually or collectively, lead to a negative rating action/downgrade:

--Sustained leverage above 10x in Fitch's base and stress case scenarios, in the context of the current revenue defensibility and operating risk assessments;

--An escalation in capital spending and debt issuance materially above current estimates without offsetting revenue measures.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

SECURITY

 The bonds are payable from a subordinate lien pledge of the net revenues of the system, after the payment of debt service on outstanding senior lien bonds. The senior lien is closed. The WIFIA loans are supported by the net revenues of the system as well as the full faith and credit of the county's tax levy.

Revenue Defensibility

Revenue defensibility is assessed at 'aa'. The system serves as a monopoly provider within the county and has independent rate-raising authority. Residential charges are affordable for over 80% of the population, with monthly charges of $99 based on Fitch's standard 7,500 gallons per month (gpm) of water consumption and 6,000 gpm of sewer flows. The county has a solid history of implementing rate increases, and additional increases already planned will be required to fund ongoing capital needs.

The system projects a cumulative water and sewer revenue increases of 30% through fiscal 2026, with annual adjustments of 6% through fiscal 2025, and 3.75% the following year. Revenue growth is projected to be further bolstered by the system's aggressive collections rate campaign that seeks to improve customer bill collections that declined to around 86% during the pandemic to their pre-pandemic 95% rate. This is projected to recoup between $1 million to $3 million per year over the next five years. Fiscal 2020 water consumption levels still yielded stronger yoy revenue growth above fiscal 2019 despite a rise in delinquent accounts.

The county has a diverse economic base, additionally benefiting from its proximity to Atlanta. The MSA has experienced population and job growth at a favorable pace relative to the state and U.S. and ranks ninth largest among all U.S. metropolitan areas by both measures. The county is the headquarters for the Centers for Disease Control (CDC), the only federal agency based outside of Washington, D.C., as well as the Yerkes Primate Center, Emory University and Agnes Scott College. The county is also home to Georgia's second busiest airport, the DeKalb Peachtree Airport. Socioeconomic characteristics throughout the service area are midrange as unemployment and household income levels track closely with national averages. Customer growth is modest, reflecting a stable customer base. The system is mostly residential and there is minimal customer concentration. The 10 largest customers have comprised less than 10% of total system revenues in each of the last five years.

Operating Risks

The system's operating risk is assessed at 'aa' which takes into consideration a very low operating cost burden with moderate life cycle investment needs supported by adequate capital investment. The system's operating cost burden has averaged $5,457 per mg of flows over the last five years, below the $6,500 per mg threshold for the 'aa' subassessment. The capital planning and management subassessment of 'aa' reflects a life cycle ratio of 26% as of fiscal 2020, well below the 45% subassessment upper threshold. This is reflective of a robust capital spending history, averaging 433% of the rate of annual depreciation since fiscal 2016.

The county's fiscal 2021-2025 CIP totals $1.2 billion, which is expected to be funded with around 71% new debt and 28% pay-go, impact fees (derived from developers as they connect to the system) and existing proceeds. Debt sources include a mix of revenue bonds but primarily low-interest loans from Georgia's SRF and the EPA's WIFIA program. Roughly 30% of the five-year CIP costs is attributable to projects related to the consent decree. Originally entered into in 2011 and recently modified in 2021, consent decree compliance projects have been ongoing for nearly 10 years. Unforeseen population and development growth within the county caused the scope of work to increase, culminating in the county successfully renegotiating the June 2020 completion date to be extended until December 2027. Overall, the county plans to complete around $2.9 billion on systemwide capital investments through 2031, peaking in 2026.

Other projects include an upgrade and expansion of the larger of the two county-owned wastewater treatment facilities, the upgrade and expansion of the county's water treatment plant, repair and replacement of the water distribution network (pipes), upgrades and repairs to the sewer collection system, and capital projects associated with county ownership stake in the city of Atlanta's R.W. Clayton wastewater treatment plant.

Financial Profile

The financial profile is assessed at 'aa'. Fitch's calculated leverage is currently moderate at 6.5x for fiscal 2020 and has been less than 7x since fiscal 2016. The liquidity profile is neutral to the rating with coverage of full obligations at 1.4x and a liquidity cushion of 257 days at the close of fiscal 2020. Fitch calculated all-in debt service coverage for the year was 1.2x.

Fitch Analytical Stress Test (FAST)

The FAST base case was informed by the system's five-year operating projections, which include annual rate increases beginning in fiscal 2022 along with $851 million in additional borrowings. The base case results point to leverage rising steadily to 7.3x by fiscal 2025. The FAST stress case, which layers an additional 10% in capital spending on the base case, also shows a steady increase in leverage throughout the forward look, reaching 7.8x by fiscal 2025. Capital spending is expected to remain elevated over the 10-year period, peaking just beyond the FAST timeframe and declining thereafter but remaining within the assessment range.

Sources of Information

In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis.