Loading...
HomeMy Public PortalAboutExhibit MSD 48 - Standard & Poor's Rating ReportExhibit MSD 48 Metropolitan St. Louis Sewer District, Missouri; Water/Sewer Credit Profile US$150.0 mil wastewtr sys rev bnds ser 2013B due 05/01/2034 Long Term Rating AAA/Stable Rationale New Standard & Poor's Ratings Services assigned its 'AAA' rating to Metropolitan St. Louis Sewer District (MSD or the district), Mo.'s 2013B wastewater system revenue bonds. At the same time, Standard & Poor's affirmed its 'AAA' rating on the MSD's existing revenue -secured debt. The outlook is stable. The rating reflects our assessment of the district's: • Strong and diverse service area economy covering the City of St. Louis and St. Louis County; Large, diversified customer base; ▪ Moderate rates not subject to outside regulation; • Strong financial operations, with strong pro forma debt service coverage; and • Strong management policies and planning capabilities. MSD's net wastewater operating revenues, excluding property tax revenues and stormwater service charges, secure the bonds. Bond proceeds will finance various improvements, as part of the district's long-term planning in addressing needs, mostly related to the consent decree. The district will fund a debt service reserve at the standard three -prong test. These bonds are on parity with the district's debt outstanding, other than its subordinate state revolving fund debt. MSD provides wastewater treatment and storm water management to the city of St. Louis and most of St. Louis County. The customer base is large (approximately 425,000 accounts), stable, and diversified. Accounts in the county make up 64% of the total. The largest user, InBev (Anheuser-Busch InBev N.V./S.A.), in the City of St. Louis, accounted for only 2.4% of wastewater user charges in fiscal 2013. The next nine largest users made up another 3.6%. MSD's capital program plan, formulated in 2004 for the next couple of decades, calls for $4 billion-$6 billion for various projects to allow the district to meet federal and state discharge requirements, as well as to renovate and rebuild infrastructure. The district also entered into a consent decree with the U.S. Department of Justice to address $4.7 billion (2010 dollars) of needs over a 23-year period. This incorporates addressing various projects as part of its combined sewer overflow (CSO) long-term control plan and sanitary sewer overflow (SSO) projects as well. The consent decree, in the district's view, aligns with plans already initiated by the district. The $1 billion earmarked in the 2012-2016 capital improvement and replacement program (CIRP) addresses some of these needs. The SSO master plan, which is due at the end of 2013, covers about 40% of the total long-term needs. Of the current CIRP: $160 million will address reduction and control of CSOs, $597 million is elimination of SSOs, $212 million is for system projects, and $161 million is for treatment plant improvements. With the CIRP, MSD adopted rate increases between fiscal years 2012-2016, such that it would produce annual revenue increases of 1.53%, 6.77%, 8.89%, 10.30%, and 12.13%, WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 15, 2013 2 1217227 300030603 Metropolitan St. Louis Sewer District, Missouri; Water/Sewer respectively. For fiscal 2014, the rate is at $39.85, assuming 1,000 cubic feet for a monthly residential bill. By fiscal 2016, it will reach $50.35 per 1,000 cubic feet. The district is planning on approaching its board sometime over the next year to discuss the next series of multiyear rate increases. Between fiscal years 2013 and 2016, the district plans to address its capital needs mostly through debt, using nearly 80% debt to finance these needs through 2016. Given the capital needs already addressed, we view MSD's financial operations as strong, reflecting large amounts of pay-as-you-go capital spending. Net income (excluding depreciation, property tax revenues, grant revenue, and stormwater service charges) has produced very strong coverage for senior -lien debt and all -in annual debt service coverage. Over the past few fiscal years (2009-2013), coverage of senior -lien debt ranged between 3.13x-6.06x. All -in coverage was between 1.7x-2.8x for the same time period. Net available revenues decreased 25% between fiscal years 2009 and 2011 due to a district court finding the district's impervious stormwater charge unconstitutional. The district has implemented a property tax to partially offset the loss of this. However, the recent Missouri Supreme Court decision ruled that the stormwater fee is a tax, and the district is figuring out its next course of action to address stormwater needs. In our view, the district's liquidity has remained very strong, at nearly $238 million (594 days' unrestricted cash and investments at the end of fiscal 2013, when looking at the wastewater operations only). Liquidity from the district's current asset totals $149 million; the district has additional liquidity that's listed as unrestricted but is listed as long-term investments available and is equal to $89 million. The district is projecting liquidity to increase in fiscal 2014 and then decrease due to capital spending. Management's liquidity policy is to maintain at least 60 days' cash, but the district is targeting to maintain a significantly higher level, especially as MSD addresses its capital needs. The district's debt to plant has $913.9 million of revenue bonds payable outstanding as fiscal 2013 year-end, translating to a 34% debt to plant ratio. The district is projecting strong annual debt service coverage. Coverage of senior -lien debt, which includes the 2013B issuance and projected rate increases, is 2.4x-2.9x in fiscal years 2014-2016. Projected all -in coverage ranges between 1.65x-1.81x for the same time frame. Coverage during this period declines as recently issued new money bond issuance debt service starts to be repaid. The district is planning to next issue debt in fall 2014, although it intends to use the state revolving fund where possible to obtain lower interest rates. It has only fixed-rate debt outstanding. Coverage could decrease following this additional debt issuance, but as the district addresses implementation additional rate increases for the period beyond fiscal 2016, we expect coverage to remain at least good, in our view. Beyond the current planning horizon for the district's CIRP that goes through fiscal 2016, annual debt service coverage could decrease further in the absence of additional rate increases. However, we do expect the district to increase rates sufficiently to maintain at least its good coverage levels. The district's unfunded pension and other postemployment benefits (OPEB) do not constrain the district's financial operations, in our view. MSD has been making its annual required contribution with a funded ratio of 83% as of Dec. 31, 2012 and $45.2 million in unfunded liability, and is down $4 million from the previous year. The OPEB estimated unfunded liability, as of June 30, 2014, was at $26.0 million as of the last actuarial valuation. The district made a change to the defined benefit program recently and plans to continue using its pay-as-you-go approach. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 15, 2013 3 121722/ 300030603 Metropolitan St. Louis Sewer District, Missouri; Water/Sewer Outlook The stable outlook reflects Standard & Poor's expectation that MSD will adjust rates as necessary to maintain strong debt service coverage as it issues additional debt, as well as to generate at least good net revenues to support its large capital program. The strength of the district's service area provides additional rating stability, as does the district's ability to adjust rates as needed. While not expected during the current two-year outlook period, we could lower the rating if the district is not able to maintain at least its good financial position, particularly as it begins to address its capital needs with additional debt. Beyond the outlook period, any trend of deteriorating finances could pressure the rating. Operations And Governance MSD serves 525 square miles of the St. Louis metropolitan area, which has a population of about 1.3 million. Within the service area are five separate subregions, distinguished by watershed. Each subregion contains at least one wastewater treatment plant. The district operates seven treatment facilities, which are designed with a combined secondary treatment capacity of 356 million gallons per day. The district operates about 9,578 miles of collection and trunk sewers, including 1,806 miles of combined sanitary and stormwater sewers that are mostly located in St. Louis. A six -member board of trustees governs MSD. St. Louis' mayor appoints three members and the St. Louis County executive appoints the rest. The board appoints a 15-member rate commission made up of representatives from different local organizations to review and make recommendations regarding all proposed rate increases. The final decision rests with the board. The district bills its customers directly. Bond Provisions We believe that bond provisions as set out in the master bond ordinance are satisfactory. The rate covenant requires MSD to set rates and charges to cover at least 100% of operating and maintenance expenses; 1.25x debt service on all senior -lien debt; and 1.15x.on all bonds outstanding, including subordinate debt. The district may issue additional parity bonds upon either of the following: • An independent certified public accountant's report stating that the historical net operating revenues and investment earnings for 12 consecutive months out of the previous 18 were at least equal to 125% of maximum annual debt service (MADS) on the outstanding and additional bonds; or • A consultant's report stating that the forecast net operating revenues and investment earnings for the year in which the bonds are to be issued and the following two years are at least equal to 125% of MADS after the additional bonds. The first part of the additional bonds test may adjust for pro forma rate increases imposed before the issuance of the additional bonds. The second may take into account future board -approved rate increases. A debt service reserve fund will be established at closing, equal to the least of 10% of bond principal, 125% average annual debt service, and MADS. WWW.STANDARDANDPOORS.COM/RATINCSDIRECT NOVEMSER 15, 2013 4 1217227 300030603 Metropolitan St. Louis Sewer District, Missouri; Water/Sewer Related Criteria And Research • USPF Criteria: Key Water And Sewer Utility Credit Ratio Ranges, Sept. 15, 2008 • USPF Criteria: Standard & Poor's Revises Criteria For Rating Water, Sewer, And Drainage Utility Revenue Bonds, Sept. 15, 2008 • US. State And Local Government Credit Conditions Forecast, Oct. 1, 2013 Ratings Detail (As Of November 15. 201 Metro St Lows Swr Dist wastewtr sys rev bnds Long Term Rating Unenhanced Rating AAA/Stable NR(SPUR) Affirmed Withdrawn Metro St Louis Swr Dist wastewtr Unenhanced Rating AAA(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 15, 2019 5 1217227 360030603 Copyright ® 2013 by Standard & Poor's Financial Services LLC. All rights reserved. No content (including ratings, credit -related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third -party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is. basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit -related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to aclmowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirectcom and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third -party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. McGRAW HILL WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 15, 2013 6 1217227 300030603