Coming off an upgrade from S&P Global Ratings, Atlanta plans to price $1.1 billion in water and wastewater subordinate-lien revenue and revenue refunding bonds next week.
In March S&P raised the rating on the city's senior-lien water and wastewater system revenue bonds to AA from AA-minus and raised the rating on its subordinate-lien bonds to AA-minus from A-plus.
Next week's subordinate lien bonds are rated Aa3 by Moody's Ratings, following an affirmation, and AA-minus by KBRA in a first-time rating. All the ratings have stable outlooks. The bonds are backed by a net revenue pledge. Moody's and KBRA both rate the senior bonds one notch higher.
Lead managers on the deal are Loop Capital and Goldman Sachs & Co. with Loop running the books. Mesirow Financial, RBC Capital Markets and Truist Securities are the co-senior managers. Academy Securities, Blaylock Van, Security Capital Brokerage and Stern Brothers are co-managers.
The bonds will be used for five purposes: about $785 million for current refunding of outstanding bonds, $230 million to pay off commercial paper, $70 million to cover capital projects, a small sum for costs of issuance, and the balance for bonds tendered
The bonds being refunded are various maturities from Series 2017A, 2018B, 2018C, 2019 and 2020 bonds. The department is also offering the tender to holders of the bonds' same maturities. The tender is expiring at 5 p.m. Eastern on Monday.
The bonds are designated as sustainability bonds, supported by a second-party opinion from S&P. They are scheduled to price Tuesday.
For years, Atlanta's wastewater capital plans were driven by
The city's success in meeting the goals of the consent decrees was cited in S&P's March 25 upgrade.
"Management has made meaningful progress toward resolving its remaining federal consent-decree obligations, supported by measurable reductions in sanitary sewer overflows and a sharply diminished regulatory framework," the rating agency said.
Along with short term steps to address water valves and the Flint River Pump Station, the city "is in the final stages of selecting a program manager to lead a comprehensive effort focused on water distribution pipe replacement and drinking water treatment plant rehabilitation," said a statement from the Department of Watershed Management's office of communications & community relations.
S&P said the system's pump stations and water-conveyance infrastructure remain potential vulnerabilities, as evidenced by major water main breaks in 2024. Cumberland Advisors Executive Vice President and Chief Investment Officer John Mousseau said
KBRA paraphrases the U.S. Army Corps of Engineers as saying, "water system reinvestment needs could total billions of dollars over the next two decades, far exceeding the current dedicated allocation for water transmission and distribution improvements in the near term capital plan." Mousseau said the needs will have to be addressed and "bonds will be an important component."
The Department of Watershed Management provides water to retail customers in the city and some areas outside the city. It also provides water service to wholesale customers in three Fulton County cities and the counties of Coweta, Clayton and Fayette.
The wastewater system provides service to retail customers in the city and wholesale service to DeKalb County and three municipalities outside Atlanta.
All of Georgia is in an official drought and the area around Atlanta is in
"While current drought conditions sharpen focus on water supply resilience, they do not materially alter near-term credit fundamentals for Atlanta's water & wastewater system; rather, they reinforce longer-term climate considerations already embedded in investor analysis," said Bhanu Patil, managing partner at SunBright Advisory Partners. "I expect any pricing impact to be minimal, with the drought serving more as a diligence topic than a spread driver, given the system's essential-service nature and established resilience."
The department's communications office commented, "No material impact is anticipated currently.... Long-term forecasts point to an emerging El Niño pattern that should return the region to normal or above-normal rainfall later this year."
S&P noted that the department in the last few years developed a quarry water storage facility that has a 30-day emergency raw water supply.
In an April rating report KBRA noted the department was supported by
KBRA said its AA-minus rating is supported by a large, growing and generally affluent service area that provides stable demand and a diverse customer base.
"The current $1.46 billion five-year capital improvement program is manageable and supported by a funding strategy that is almost 50% pay-go funded, helping moderate future borrowing needs while maintaining investment in core infrastructure," KBRA said.
For credit challenges, KBRA said the department has elevated rates that constrain possible future rate increases. The ability to increase rates is also hindered by the city's governance structure, with the city council and not a utility board setting the rates.
"While the department's regulatory burden has declined materially from prior years, compliance-related obligations remain ongoing, particularly on the wastewater side, where consent decree-related work and other treatment and rehabilitation needs continue to require management attention and capital resources," KBRA said.
S&P said its upgrades "reflect the substantial completion of key consent decree projects, demonstrating improved regulatory compliance and reduced environmental risk. Furthermore, the capital plan is now viewed as more manageable due to a greater reliance on internally generated funds and a strategic shift towards asset preservation."
Additionally, S&P noted the department has consistently strong projected debt service coverage and a proactive financial management.
For credit concerns, S&P said the system's sewer rate is more than 2.5 times higher than the median for AA-rated systems. The water and sewer bill's portion of median household effective buying income is 2.6% as opposed to the 1.1% found in the median AA-rated system.
Moody's Ratings said the department benefited from a diverse and growing regional economy that continues to lead to expanding revenues.
Moody's said the department's leverage was likely to remain above comparably rated peers, due to planned debt-financed capital investments. Long-term liabilities are at about 360% of revenue.
The municipal option sales tax revenue expands the department's revenue base and has allowed the city to keep water and sewer rates flat, Moody's said. "While voters have reauthorized the MOST every four years since it was initially approved in 2004 (including in May 2024, with 75% approval), the need to seek voter approval every four years for such a significant revenue stream introduces a degree of political risk that is unique to the water and sewer sector. The current MOST is subject to voter renewal in 2028 and legislative reauthorization in 2032."
The city's investor presentation indicates the department had $2.43 billion of debt as of the end of April.
Hilltop Securities, Grant & Associates, and PFM Financial Advisors are the co-municipal advisors. Greenberg Traurig and Riddle & Schwartz are the co-disclosure counsels. Squire Patton Boggs and Tiber Hudson are the co-underwriters' counsel.
The bonds are expected to mature from November of this year to November 2056, according to an online investor presentation. As of Wednesday, the optional redemption date hadn't been announced.
