News Column

Fitch Rates Greater New Haven Water Pollution Ctrl Auth, CT Reg Wastewater System Rev Ref Bonds 'A+'

June 10, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A+' rating to the following bonds of Greater New Haven Water Pollution Control Authority, CT (the authority):

--Approximately 76.5 million regional wastewater system refunding revenue bonds, 2014 series B.

In addition, Fitch affirms the 'A+' rating on the authority's approximately $109.8 million in outstanding regional wastewater system revenue bonds, 2005 series A, 2008 series A, and 2012 series B.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien on net revenues of the authority. Outstanding bonds are also secured by a cash funded debt service reserve.

KEY RATING DRIVERS

STABLE SERVICE AREA: The authority provides wastewater collection and treatment to a sizeable service area anchored by Yale University, Yale-New Haven Hospital, Quinnipiac University and Southern Connecticut State University. The customer base is diverse and revenue collection remains strong.

LEVERAGE REMAINS ELEVATED: The authority's debt profile has shown some improvement but remains high. Fitch expects that with additional planned borrowings, debt will remain well above Fitch's rating category medians.

AMPLE FLEXIBILITY: Affordable user charges and the authority's ability and demonstrated willingness to raise rates independent of outside regulation or oversight provides significant flexibility needed to meet an expected rise in the authority's debt levels.

SOUND FINANCIAL METRICS: Financial results have improved in recent years, prompting all-in debt service coverage (DSC) and liquidity to exceed Fitch's median ratios for the given rating category.

MANAGEABLE CAPITAL PROGRAM: Capital needs, despite the inclusion of regulatory requirements, are not onerous. However, additional debt issuance is forecast to fund the vast majority of the authority's capital program, resulting in an estimated 25% increase in leverage metrics.

RATING SENSITIVITIES

MODERATION IN DEBT LEVELS: The planned increase in leverage offsets the authority's otherwise stable credit profile and is likely to preclude positive rating consideration over the medium term.

CREDIT PROFILE

REGIONAL UTILITY PROVIDER

The authority was created in 2005 to provide wastewater collection and treatment to approximately 47,700 customer accounts located in the cities of New Haven (general obligation [GO] bonds rated 'A-' with a Negative Outlook), Hamden (GO bonds rated 'BBB' with a Negative Outlook), East Haven and Woodbridge. Prior to 2005, the utility was owned and operated by the city of New Haven'sWater Pollution Control Authority.

Almost one-half of the authority's customer base resides in New Haven, 30% in Hamden, 21% in East Haven and the balance in Woodbridge. In total, the authority serves an estimated population of almost 200,000. The customer base is diverse, with revenue derived from the largest customers typically accounting for less than 14% of gross system revenues.

ADEQUATE TREATMENT CAPACITY

The authority's lone treatment plant provides ample treatment capacity and is reportedly in adequate repair. The plant has an average daily design flow capacity of 40 million gallons per day (mgd) and provides primary and secondary treatment for all wastewater influent up to 60 mgd. Average daily flows gradually declined during and immediately following the recent economic recession but have since grown modestly over the prior three fiscal years. The average daily flow in fiscal 2013 was approximately 29 mgd, down from about 34 mgd in the latter part of the prior decade. The authority's financial forecast reasonably assumes flat demand over the ensuing five years, which mirrors assumed growth patterns for the customer base.

IMPROVING FINANCIAL PROFILE

Financial operations have improved in recent years, principally due to rising rates and a return to modest growth in consumption. Net of rate stabilization (RSF) draws, annual DSC averaged a weak 1.1x between fiscals 2008-2010 compared to 1.6x over the three most recent fiscal years and the rating category median of 1.5x. Liquidity also strengthened in recent years, growing from just under 300 days of cash on hand to nearly 470 days at the close of fiscal 2013.

Fitch views favorably the authority's yearly practice of formulating a cost of service study as a basis for determining its longer term revenue and rate requirements. The multi-year forecast projects total operation and maintenance costs as well as future debt service, which then determines the amount of revenue needed to achieve the authority's 1.15x DSC target. Fitch notes that the authority has a demonstrated history of meeting or exceeding its stated financial projections.

REASONABLE RATES

The authority's wastewater rates remain largely affordable, despite measured increases implemented annually dating back to 2005. Annual rate hikes since 2010 have been manageable, rising by an annual average of 7.75% and leaving the average monthly residential bill at about $34, equal to an affordable 1% of median household income for the city of New Haven. Financial projections through fiscal 2017 reflect annual rate hikes of a similar magnitude.

MANAGEABLE CAPITAL NEEDS BUT RISING DEBT LEVELS

The system's multi-year capital improvement program totals a manageable $117 million, the bulk of which (82%) is for the continued implementation of a long term control plan related to an ongoing consent decree. Estimated spending over the current five-year period is roughly 45% lower than more recent capital programs as many of the projects related to the consent decree have already been funded. The vast majority (over 80%) of capital needs will be debt financed, resulting in an estimated 25% increase in debt outstanding by fiscal 2018. While the expected rise in leverage ratios is somewhat concerning, financial projections through 2018 include annual rate increases that should allow the authority to maintain its already healthy financial profile.

The authority expects to issue an additional $15 million in publicly-issued revenue bonds and borrow nearly $72 million in state revolving fund loans over the current planning period. The balance of the capital program will be funded from expected grants and excess cash flows, which Fitch expects will leave the authority's unrestricted cash position intact.

STABLE SERVICE TERRITORY

Economic indicators for the service area are somewhat weak but have yet to impair the authority's ability and willingness to raise rates or maintain strong collections. Median household income in New Haven equals just three-quarters of the U.S. figure and less than two-thirds of the wealthier state figure. More concerning is the city's poverty rate, which at 26.3% is almost twice the national rate. Per capita and median household income data for the smaller cities served by the authority are not available, although the cities are believed to be somewhat more affluent than New Haven.

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 2013;

--'U.S. Water and Sewer Revenue Bond Rating Criteria', July 2013;

--'2014 Water and Sewer Medians', dated December 2013;

--'2014 Outlook: Water and Sewer Sector', dated December 2013.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709499

U.S. Water and Sewer Revenue Bond Rating Criteria

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

2014 Water and Sewer Medians

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724358

2014 Outlook: Water and Sewer Sector

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724357

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=833975

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Christopher Hessenthaler

Senior Director

+1-212-908-0773

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 10004

or

Secondary Analyst

Andrew DeStefano

Director

+1-212-908-0284

or

Committee Chairperson

Amy R. Laskey

Managing Director

+1-212-908-0568

or

Media Relations

Elizabeth Fogerty, New York, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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