Pennsylvania EDFA 2009 Bonds Downgraded to BBB by Fitch

Fitch Ratings downgrades the rating on approximately $68 million of Pennsylvania Economic Development Financing Authority sewage sludge disposal revenue bonds, series 2009 to BBB from BBB-plus.

The proceeds were loaned by the authority to Philadelphia Project Finance, LLC to finance the construction of a new biosolids processing facility and improvements to the existing facility in Philadelphia.

The rating outlook is stable.

The downgrade reflects reduced debt service coverage ratio projections resulting from the inclusion of annual allowances for contractual management service fees assessed to the project by Synagro's (the project sponsor) parent company, STI, and additional expected capital maintenance costs.

Fitch's base case coverage projections are now expected to average 1.35x over the next five years which is consistent with a BBB rating given the risk profile of the project. Fitch's prior projections indicated DSCRs would be approximately 1.5x.

The project did open one month late but on budget and after nearly a full year of operations, Fitch does not expect further volatility in operating or capital expenditures.

Revenue from the sale of pellets (sludge dewatered to pellet form) is higher than previously expected. While such sales are not currently projected to result in a profit, Fitch understands management is attempting to secure various outlets for the sale of these pellets which could improve margins over time.

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