CHICAGO - Standard & Poor's this week raised its ratings on revenue bonds from 24 Midwestern water and sewer issuers, the latest beneficiaries of the agency's credit revisions.
The agency released its revised criteria for rating water, sewer, and drainage utility revenue bonds in mid-September and upgraded roughly 100 credits at the time. Since then, analysts in each region have been reviewing their local credits based on the criteria changes.
The latest round of issuers to benefit from the changes demonstrated strong financials, including solid debt service coverage ratios and cash reserves, and-or good economic fundamentals that gave analysts confidence in the systems' ability to manage financial pressures stemming from housing market problems, job losses, or inflationary costs.
Analysts also cited solid financial management policies, with systems benefiting from managers willing to adjust rates and use long-term planning to fund key service components like water supply or regulatory-driven capital expenditures.
The upgraded systems cover a broad swath of service types - from distribution alone to collection and treatment - and are spread across a range of geographic locations, including large systems that serve whole regions and smaller ones that serve local communities in Illinois, Indiana, Kentucky, Michigan, Missouri, Nebraska, and North Dakota. Many received one-notch upgrades, but some were raised multiple levels.
The upgraded issuers include Aurora and Joliet in Illinois; Evansville and Fishers in Indiana; Campbell, Kenton, and Boone Counties Sanitation District No. 1 in Kentucky; Ann Arbor, Burton, Charlotte, Clinton Charter Township, Coldwater, Durand, Howell, Jackson, Macomb Township, Melvindale, Muskegon City, Saline, Sturgis, Traverse City, and Ypsilanti Community Utilities Authority Zeeland in Michigan; Springfield Board of Public Works in Missouri; Fargo in North Dakota; and the Lincoln Water System in Nebraska.
The systems located near the Great Lakes draw from an ample water supply, while those on the outskirts are served by what is also considered steady water supplies, such as the Mississippi, Missouri, and Ohio Rivers, or wells.
Growth throughout the region has been modest, allowing the systems to manage capital expenditures without significant pressures, analysts wrote.
The systems benefit from their status as monopolies in their service areas and mostly enjoy local rate autonomy. "These are characteristics that we feel help to support credit quality. Only a few states require local rate increases by a state regulator such as a public service commission," analysts wrote.
Analysts have traditionally given significant weight in their ratings to the economy of a water, sewer, or drainage utility's service area and its financial performance, but analysts are now giving additional consideration to the sector's underlying stability.
Analysts believe that stability is evidenced in the sector's overall operations and financial performance, and the sector's successful management in implementing the requirements of the federal Safe Drinking Water Act of 1974 and the Clean Water Act of 1972.
Analysts are also no longer penalizing most smaller or rural utility systems for their size. "Our criteria revision reflects our view that for general obligation ratings, a small and-or rural issuer does not necessarily have what we consider weaker credit quality than a larger or more-urban issuer," analysts wrote. "We believe many municipal systems still exhibit, in our view, strong and stable credit quality despite size or location constraints."
Aurora's water system was upgraded to AA-plus. The city is located 36 miles west of Chicago. The system has used excess cash generated over the last two years to refund much of the district's outstanding debt.
Joliet's water and sewer system was upgraded to AA-minus. Joliet is located 40 miles southwest of Chicago. It operates three wastewater treatment plants and 10 water treatment plants.
Evansville's sewer system was upgraded to AA-minus. The city is located on the southwest border of Indiana, along the Ohio River, and the sewage system serves nearly 51,900 customers.
Fishers' sewer system was upgraded to AA. Fishers is located about 15 miles northeast of Indianapolis. The wastewater system anticipates approximately $51 million in future capital projects, including a proposed plant expansion.
The Campbell, Kenton, and Boone Counties Sanitation District No. 1 in Kentucky was upgraded to AA. The district services 350,000 people in three counties in the Cincinnati area. The system is transitioning from a regional wholesale provider to a retail-based system.
Ann Arbor's storm water system was upgraded to AA-plus. The city is the seat of Washtenaw County, about 35 miles west of Detroit. Unlike other utility systems, the drainage system's customer fees are fixed, insulating it from revenue fluctuations.
Burton's water and sewer systems were upgraded to AA-minus. Burton is adjacent to Flint and 25 miles north of Oakland County. The base of 12,813 sewer customers and 6,793 water customers has grown by about 3% over the last three years.
Charlotte's water and sewer systems were upgraded to A-plus. The 5.5-square-mile Charlotte has a population of 8,600. The city's combined water and sewer utility customer base has grown at an average annual rate of 1.3% over the last four years to 3,763.
Clinton Charter Township's water and sewer systems were upgraded to AA-minus. Clinton Charter Township, population 96,113, covers approximately 28 square miles and is located about 14 miles north of Detroit in Macomb County.
Coldwater's water and sewer systems were upgraded to A. Coldwater is the county seat of Branch County in Michigan and serves about 4,500 customers.
Durand's sewer system was upgraded to BBB-plus. Durand is in central Michigan. The system has little concentration from users and has historically maintained strong debt service coverage and liquidity levels.
Howell's water system was upgraded to A-plus. Howell is the seat of Livingston County in Michigan and has experienced rapid population growth. The system serves approximately 3,000 customers.
Jackson's water system was upgraded to AA-minus. Jackson is in central Michigan. The system's financial performance has historically been strong.
Macomb Township's system was upgraded to AA-plus. Macomb Township is 20 miles north of Detroit. The system provides collection and distribution services to its 24,000 customers.
Melvindale's water and sewer systems were upgraded to A. Melvindale is a suburb of Detroit, serving 3,700 customers.
Muskegon's water system was upgraded to AA-minus. Muskegon is in western Michigan and serves as a regional center.
Saline's water and sewer system was upgraded to A-plus. Saline is a suburb of Ann Arbor serving about 3,000 customers.
Sturgis' water system was upgraded to BBB-plus. The Michigan city's water system has continued to maintain ample capacity.
Traverse City's water system was upgraded to AA. Traverse City's regional water system serves over 7,000 customers, up from approximately 5,300 in 2003 due to service expansion to surrounding townships.
The Ypsilanti Community Utilities Authority was upgraded to A. The Michigan city has maintained a relatively stable customer base, despite some concentration.
The Zeeland water system was upgraded to AA-minus. The Michigan system's customer base, while concentrated, has remained very stable.
The Springfield Board of Public Works was upgraded to AA-plus. The Missouri utility provides strong management, as evidenced by regularly planned and implemented rate increases, upgraded and maintained facilities and comprehensive long-range planning practices.
Fargo's water system was upgraded to AA. The North Dakota system has seen its customer base grow roughly 2% annually to 26,760. Despite the growth, water usage has been relatively flat over the past decade, due to conservation measures to address drought conditions.
The Lincoln Water System was upgraded to AA. The city of Lincoln, Nebraska's state capital, owns and operates the water system. Despite adding debt to fund various capital needs in recent years, the water system continues to maintain at least good annual debt service coverage with strong liquidity levels.
