Fitch Ratings assigns an 'AAA' rating to the following Palm Beach County, FL (the county) bonds:

--$23.2 million water and sewer revenue refunding bonds, series 2015.

In addition, Fitch affirms the following ratings:

--$170.3 million (pre-refunding) water and sewer system revenue bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are supported by a first lien on and pledge of the net revenues of the county's water and sewer system (the system), as well as connection fees.

KEY RATING DRIVERS

EXCELLENT FINANCIAL PERFORMANCE AND MANAGEMENT: Financial margins are strong and have generated significant cash flows and debt service coverage (DSC) over time. Liquidity has roughly tripled over the past five years, ending unaudited fiscal 2014 with a very strong 719 days of operations.

LOW DEBT AND MANAGEABLE CAPITAL NEEDS: The system's credit profile benefits from a history of pay-as-you-go capital financing that has helped keep debt levels low. The five-year, $370 million capital improvement plan (CIP) will be entirely cash-funded and address substantial renewal and replacement (R&R) programs.

LOW RATES: The average residential bill for combined service is low relative to median household income (MHI) and when compared to neighboring systems.

LARGE AND STABLE CUSTOMER BASE: The system provides service to a large, stable, and mostly residential customer base with above-average wealth levels. The economy is diverse and Fitch believes that long-term economic prospects remain favorable.

RATING SENSITIVITIES

RATING STABILITY EXPECTED: The rating is sensitive to changes in the system's credit fundamental. The Stable Outlook reflects Fitch's expectation that changes to the system's strong credit profile are not anticipated over the near to intermediate term.

CREDIT PROFILE

STRONG SERVICE AREA

Palm Beach County (general obligation debt rated 'AAA' by Fitch) is located on Florida's southeast Atlantic coast. The system's service area covers 1,200 square miles (largely unincorporated county areas), and has approximately 240,669 mostly residential retail water connections, 220,807 sewer accounts, and several wholesale customers through bulk agreements. Connections are about 95% residential with the 10 largest customers comprising a moderate 9.8% of unaudited operating revenues in fiscal 2014. Overall, the customer base has demonstrated modest growth and above-average economic characteristics and is expected to remain stable.

EXCELLENT FINANCIAL PERFORMANCE

System financial performance has historically been strong; total DSC has averaged 3.5x since fiscal 2009 and ended fiscal 2014 (unaudited) at 4.2x. Liquidity is ample, with an estimated $221 million of unrestricted cash available in fiscal 2014, equating to 719 days' operations for that year. Non-operating revenues such as connection fees and investments have provided a significant source of revenues to the system as well. Connection fees alone have averaged $7.4 million annually since fiscal 2009, or 8% of total fiscal 2014 unaudited revenues. Payments from Florida Power & Light (FP&L; Issuer Default Rating 'A'/Stable Outlook) for reclaimed water provide an additional roughly $4 million annually. When excluding non-operating revenues from debt service calculations, DSC on all debt was still a very strong 3.5x in fiscal 2014 based on unaudited results.

Management expects the system to generate nearly $50 million annually in excess cash flow to satisfy most capital needs. When combined with additional capital contributions from FP&L, inter-county financing agreements, and connection fees that generally support system rehabilitation rather than expansion given the built-out nature of the service area, Fitch estimates liquid resources to be sufficient to pay for projected CIP costs. Fitch expects that cash balances will likely remain ample given the county's prudent financial management and historic cash balances.

Pro forma financial results through fiscal 2019 provided by the county show a continuation of historically strong results that assume minimal customer growth, annual rate indexing based on inflation expectations, and no additional debt. DSC for the senior lien bonds from all revenues is projected to be no less than 4.0x through the forecast, and 3.5x excluding connection fees and FP&L payments; total DSC is projected at no less than 3.5x.

LOW DEBT BURDEN

The county's debt levels are very low even with the absorption of the Glades Utility Authority (GUA) in May 2013 which added $20 million in debt to the county's balance sheet. Debt to plant was only 26% and debt per customer was just $468 in fiscal 2014 (unaudited). Debt carrying costs also represented a very reasonable 10% of gross revenues that year. All of these ratios compare favorably to Fitch's medians for 'AAA' rated systems.

LOW RATES PROVIDE FINANCIAL FLEXIBILITY

Rates are structured with a monthly base charge and an inclining block commodity charge per 1,000 gallons of use, and have been on the rise since fiscal 2008. The monthly water and sewer bill costs an average of $57 for 7,000 gallons and compares favorably to rates charged by neighboring systems. The typical residential bill is just 1.2% of MHI, which is below Fitch's affordability threshold (2%) and provides management with flexibility to raise rates in the future. Manageable automatic annual rate increases tied to inflation are expected to keep financial margins strong and are viewed positively by Fitch. The county has full authority over rate setting.

STRONG SYSTEM CAPACITY, R&R-DRIVEN CAPITAL PLAN

Raw water is supplied by two groundwater sources with permitted daily withdrawal of 87 million gallons per day (mgd), comfortably in excess of the system's average daily demand of 54 mgd in 2014. Water treatment capacity is ample with several treatment facilities combining to provide 113 mgd of capacity. Sewer system treatment capacity is also solid with treatment plant utilization at roughly 70%.

The county owns and operates a water reclamation facility and is a partial owner (34%) with the city of West Palm Beach in another reclaimed facility. The county's largest reclaimed water customer is FP&L, which purchases 22 mgd on average of reclaimed water to be used as a cooling source for a power generating facility located just west of West Palm Beach. The agreement is for an initial 30-year period beginning 2011 with 10-year renewal options. FP&L agreed to pay the entire debt service (about $4 million annually) for the 2009 bonds issued to construct the system plus some operating and capital costs.

The system's five-year $370 million CIP is comprehensive and addresses significant R&R projects. The CIP is expected to be 100% funded with internally generated cash and other liquid sources, with no borrowing plans anticipated in the near term.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 2014);

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2012);

--'2015 Water and Sewer Medians' (December 2014);

--'2015 Outlook: Water and Sewer Sector' (December 2014).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275

2015 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818409

2015 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818410

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=974435

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