Agencies Affirm Water Works’ Bond Ratings

Moody’s, Standard and Poor’s Bond Ratings – Aaa and AAA
 

CINCINNATI – The City of Cincinnati has received the highest possible rankings on its Water System Bonds from two of the top bond credit rating agencies.

In preparation for an upcoming bond sale, the City requested a bond rating from the rating agencies Moody’s Investor Service (Moody’s) and Standard & Poor’s (S&P). The ratings for this bond issuance were affirmed at the highest ratings of Aaa and AAA, respectively.

The outlook for both is stable. You can review specific details about the Water System Bond rating reviews below.

“These ratings are a reflection of the hard work of the staff at the Greater Cincinnati Water Works and in the Finance Department, as well as the Mayor and City Council’s support of a comprehensive rate plan,” said City Manager Harry Black.

The news of these bond ratings comes on the heels of last month’s news that the City of Cincinnati had received strong overall bond ratings from the same two rating agencies.

 S&P improved the City’s current rating on its unlimited-tax general obligation debt to AA. This rating had been AA-. Last year, S&P upgraded the City’s outlook to stable.

As a further testament to the City’s strong financial position last week analysts from Moody’s Investors Service reaffirmed the City’s general obligation bond rating of Aa2. Moody’s financial outlook for the City remained in the stable category.

These rating levels make it easier for the City to borrow money to finance major projects and at a lower interest rate. It also suggests that the City’s bonds are more attractive and stable for investors.

The City of Cincinnati plans to issue $25.0 million Water System Revenue Bonds and $167.89 million Water System Refunding Revenue Bonds the week of Nov. 14.

 

Moody’s

The Aaa rating is based on the following credit strengths:

• Very large service area that extends well beyond the City of Cincinnati (Aa2 stable) to include suburban communities in both southwest Ohio and northern Kentucky via retail and wholesale agreements.
• Well managed financial operations supported by the Cincinnati City Council's authority and demonstrated willingness to adjust rates in order to maintain sound debt service coverage and healthy liquidity.
• Strong capital planning processes and full compliance with all current environmental regulations that will keep the system's leverage manageable.
• Significant margin of available pumping capacity that limits system stress and supports management's plan to seek additional commercial opportunities through service area expansion. 

Moody’s cites as the following credit challenges:

• Water consumption declines over recent years due in part to weak economic trends in portions of the service area, as well as overall conservation trends across the customer base.
• Debt service coverage ratios are modest for the rating category and provide a more limited margin relative to other highly rated entities should the system realize unforeseen declines in operating revenue. 

Factors that could change the rating down include increased leverage of new water revenue and insufficient adjustments to water rates that negatively impact debt service coverage and liquidity.

The stable outlook represents Moody’s opinion that the Water Work’s very large service area and management’s flexibility to adjust rates will continue to support net revenue that keeps debt service coverage at sound levels and the system’s cash position healthy.

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S&P

S&P states that strong factors support the AAA rating at its current level.  These factors include:

• Service area participation in the broad and diverse Cincinnati metropolitan statistical area economy.
• Very low industry risk as a monopolistic service provider of an essential public utility.
• Generally affordable rates as benchmarked against Hamilton County’s median household effective buying income (MHHEBI) and its poverty rate.
• Strong operational management practices and policies.
• The maintenance of strong liquidity that can be used to absorb any unexpected revenue declines or expenses.
• Management's intent to continue with annual rate increases.

The stable outlook reflects S&P’s expectation that the system will continue to generate financial results that routinely exceed projections within the two-year outlook period.  S&P cites that a lower rating or change in the outlook to negative would be likely if total debt service coverage does not continue to outperform projections, even if other relevant credit factors do not necessarily deteriorate.

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