Sep 12, 2016 by Chris Wood, Ph.D.
Standard & Poor’s (S&P) Global Ratings has raised its issuer credit rating (ICR) on the Peachtree City Water and Sewerage Authority (PCWASA) from “AA-“ to “AA+” while noting that the future financial outlook of the utility is stable.
This upgrade in the PCWASA bond rating reflects what S&P calls a combination of an “extremely strong enterprise risk profile and a very strong financial risk profile.” The upgrade also reflects the S&P’s opinion that PCWASA has very strong economic and financial metrics, when applied to the S&P revised criteria for utility bond ratings referred to as the “Rating Methodology and Assumptions for U.S. Municipal Waterworks and Sanitary Sewer Utility Revenue Bonds,” published earlier this year.
According to Primary Credit Analyst Scott Withrow, this upgrade in PCWASA’s overall credit rating reflects S&P’s opinion of the Authority’s overall financial capacity, or creditworthiness, to pay its financial obligations.
S&P concluded that PCWASA has a very strong enterprise risk profile because of four factors. First, the utility’s service area is broad and diverse, and second, the Authority has very low industry risk because it’s a provider of an essential public utility. Third, the utility has affordable service rates in the context of the service area’s income levels, and finally, PCWASA benefits from good operational management practices and policies.
The very strong financial risk profile of PCWASA, according to S&P analysts, is attributed to four characteristics of the PCWASA system.
First, PCWASA has extremely strong historical all-in coverage metrics that are expected to continue in the future, and second, the Authority also has a very strong liquidity position. Third, PCWASA has a moderately high debt-to-capitalization ratio of about 58 percent, with no additional debt plans in the future, and finally, the Authority benefits from good financial management practices and policies.
“In our opinion, the utility’s overall financial position is sound, characterized by strong coverage and liquidity metrics,” says Withrow. “System liquidity has remained stable and very strong.”
Although the Authority’s unrestricted cash reserves are used to fund ongoing capital improvements to the PCWASA sewer system for better delivery of services to the utility’s customers, S&P noted that PCWASA is expected to maintain reserves at levels that are considered very strong in the near future, even when paying for capital projects with cash flow rather than taking on additional debt.
“We are extremely excited to receive this upgrade in our bond rating,” says Stephen Hogan, PCWASA General Manager. “We’ve come a long way over the course of the past several years, working hard to improve services while operating in a fiscally responsible manner. Our Board has provided great leadership and oversight, which has equipped our Staff with the resources to warrant this most recent favorable bond rating.”
Chris Wood, Ph.D.
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