The Buffalo, N.Y., Municipal Water Finance Authority was upgraded to A from BBB-plus yesterday by Standard & Poor’s. The agency also assigned its A-1-plus short-term rating to the authority’s Series 2008A refunding bonds that priced yesterday and will close today.
The refunding will refinance the MWFA’s $63 million of auction-rate securities as variable-rate demand bonds. The ARS were issued in 2005.
The upgrade was a reflection of improved financial performance, strong liquidity, a willingness to raise rates, and solid debt service coverage, Standard & Poor’s director Rich Marino said in a press release. The upgrade also reflected the system’s improved efficiency due to the metering of 80% of all accounts, which has led to stronger collection rate. Those strengths helped offset the area’s economic weakness, Marino said.
“The economic base in this whole area is still weak and cyclical — there’s stagnant employment growth, high unemployment, and low wealth income indicators. But that doesn’t necessarily prevent the ratings for the water and sewer system to rise,” Marino said. “It’s much less dependent on tax dollars and real estate growth [than] it is on [water] usage.”
Moody’s Investors Service and Fitch Ratings do not rate the credit.
The VRDBs will enable the issuer to keep a swap in place with Citi, which is also serving as the remarketing agent. The bonds have a direct pay letter of credit provided by JPMorgan Chase NA.
Government Finance Associates, Inc. is financial adviser. Underberg & Kessler LLP is bond counsel.
Since 1999, the authority has sold $129.7 million of bonds, of which, $63 million were refunding, according to Thomson Reuters data.
The ARS had been resetting below 4% in January and spiked to 11% in mid-February amid widespread disruption in the auction-rate market, according to Bloomberg data. The rates subsequently reset lower, falling to 4.24% last week. The ARS were insured by CIFG Guaranty, which lost its triple-A ratings from the three rating agencies in March.
