Moody's Investors Service on Nov. 6 upgraded Guam Waterworks Authority's revenue bonds to Ba1 from Ba2 ahead of the authority's plans to price $173 million in revenue bonds to pay for water system improvements required by a court order.
The rating change and positive outlook will impact $381 million of debt, which includes the planned new issuance and outstanding debt.
Proceeds of the Series 2013 bonds will be used to make improvements to the authority's water and wastewater systems mandated by a 2011 court order and identified by the U.S. Environmental Protection Agency in a 2012 finding of significant deficiencies and 2013 request for information.
The upgrade to Ba1 reflects significantly improved financial performance and coverage due to steady rate increases, according to Moody's analysts.
Analysts said it also reflects the replacement of faulty meters, cost savings from improved leak control, progress in addressing outstanding regulatory issues, and a track record of obtaining approval for and enacting needed rate increases.
The below investment grade rating reflects the small and concentrated economy, the vulnerability of system finances to volatile energy costs, above average debt levels, and uncertainty regarding the timing and cost of future regulatory requirements.
The bonds are secured by revenues of the authority's water and wastewater systems.
Strengths include the significantly improved financial performance and coverage and essentiality of the water and wastewater system.
The challenges include above-average debt levels, significant future borrowing plans, and uncertainty regarding timing and cost of future regulatory requirements.
The authority is also supported by the Pacific territory's small economy concentrated in tourism and military, the vulnerability of tourism to global macro events, wealth levels below U.S. averages and higher unemployment than the U.S. average.
The positive outlook reflects the approval of the authority's five-year rate increase plan and projections of continued strong coverage levels.