Moody’s Investors Service last week revised to negative from stable its outlook on $4.5 billion of outstanding Massachusetts Water Resources Authority debt.
Moody’s affirmed the Aa2 and Aa3 ratings on the authority’s senior and subordinated debt.
The change in outlook is due to increased operating costs in the midterm. At the same time, the agency will modify rate increases to ease payment requirements from the 61 communities it serves.
“Further, the negative outlook acknowledges MWRA’s trend of declining coverage levels, smaller projected annual rate increases in the medium term, and the reduction in pre-funding of long-term liabilities, chiefly pension and [other post-employment benefit] unfunded liabilities,” Moody’s said.
The rating affects $4.5 billion of rated debt. The MWRA has $5.9 billion of total outstanding debt.
The authority on Tuesday is expected to issue $253 million of tax-exempt bonds with Citi as book-runner. The transaction consists of $100 million of new-money Series 2010A revenue bonds and $153 million of Series 2010B revenue refunding bonds, according to the preliminary official statement.
Officials anticipate the refunding bonds to generate a net present-value savings of 3.8% of refunded principal, Moody’s said.
The MWRA has a $1.1 billion, five-year capital plan and expects to issue up to $200 million of debt per year to support its infrastructure needs. Of its outstanding debt, $1.3 billion is variable-rate, and $728 million of that is hedged with five floating-to-fixed rate swap agreements that give the authority a synthetic fixed rate, according to Moody’s.
Credit strengths include a history of strong collections of assessments, with the Boston Water and Sewer Commission accounting for one-third of those receipts. The authority’s community members have a weighted average general obligation rating of Aa3. In addition, the MWRA has the ability to intercept much of its members’ quarterly state aid payments if necessary.
Still, the expected reductions in rate increases will affect the authority’s finances, Moody’s said.
Fitch Ratings and Standard & Poor’s earlier this month affirmed their ratings and stable outlooks on the MWRA. The two agencies rate the senior bonds AA and AA-plus, respectively, and the subordinate bonds AA-minus and AA.
