The Hampton Roads Sanitation District plans to issue $208.6 million of Series 2008 wastewater system revenue bonds on March 12 on the heels of an upgrade from Standard & Poor’s to AA-plus.
The rating agency said the upgrade reflects the district’s solid financial performance and management characterized by consistently strong coverage ratios and a solid liquidity position. It also reflects the district’s diverse service area with an estimated population of more than 1.6 million and low user rates.
Analysts assigned a stable outlook and noted the district has a substantial capital plan through 2012 totaling more than $757 million, with the majority to be funded through bond issuance over the next several years.
Fitch Ratings assigned a AA rating and Moody’s Investors Service assigned a Aa3. Both have stable outlooks.
Goldman, Sachs & Co. is underwriter on the deal and BB&T Capital is financial adviser. Sidley Austin LLP is bond counsel.
The district’s chief of accounting and finance, Lee Acors, said the deal will not be insured.
“We are in pretty good shape” ahead of the sale, he said.
Proceeds will retire $75 million of outstanding variable-rate demand obligations issued through the Virginia Municipal League and Virginia Association of Counties’ Financing Program and provide $150 million of new-money financing for a variety of projects in the district’s capital program. Those include nutrient removal, plant expansion, and upgrade projects, a Moody’s news release said.
The bonds are secured by a senior lien on the district’s net revenues.
Fitch also assigns an initial AA underlying rating to $35.9 million of outstanding parity debt, and Moody’s rates the parity debt Aa3.
Fitch credits the rating to “the district’s low debt burden, sound capital planning efforts and funding strategies, and prudent financial management evidenced by consistently strong debt service coverage and healthy liquidity levels.”
Moody’s said its Aa3 reflects the “credit strengths of the district, including a strong service area, sound finances, and expected increases in currently moderate debt levels.”
According to Fitch, a multiyear capital plan requiring a “notable increase in debt and sizeable annual rate increases forecasted over the next five years” creates challenges for the district’s credit.
Municipalities in the district’s service area make up the majority of the Virginia Beach-Norfolk-Newport News metropolitan area. The majority of wastewater collection remains the responsibility of the various cities, counties, and military establishments within the district’s service area.
