Moody's Investors Service upgraded the rating on the village of Hodgkins, Ill. $36.6 million of Metropolitan Biosolids Management project revenue bonds by one notch to Aa3.

The bonds were sold in 2002 and are secured by a gross pledge of all service agreement payments from the top-rated Metropolitan Water Reclamation District of Greater Chicago. They also benefit from a debt service reserve funded to maximum at a level that meets annual debt service.

"The Aa3 rating assignment is based on the strong credit quality of the district and notched down due to operational lease risk and enterprise volatility associated with the project as well as the still limited revenue output since achieving certified functionality," Moody's wrote.

Veolia Environment SA built and operates the plant, which receives wastewater sludge from the district, bakes it into dry pellets, and sells them as a soil additive.

The service agreement provides for a gross pledge of all payments, the base fee portion of which will be sufficient to cover debt service. The project faces some risk as the district may terminate the service agreement if the project fails to meet minimum operating requirements.

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