Standard & Poor’s has a stable outlook on the municipal solid waste sector.
In the late 1990s and early 2000s “states passed a number of flow control and environmental laws that created demand for new facilities or updates to existing facilities to comply with the new standards,” wrote S&P credit analyst Corey Friedman. Most of the systems’ bonds were issued in this period, Friedman wrote in “Assessing U.S. Municipal Solid Waste Systems’ Credit Quality Means Looking Beyond the Numbers.”
Most of the facilities and facility-updates bonded around 2000 are now operational.
The systems are constructing fewer solid waste facilities now.
Solid waste facilities are primarily waste-to-energy plants, landfills, material recovery facilities, and gasification facilities.
S&P rates 11 municipal solid waste systems at AA-plus, 14 systems at AA, 12 at AA-minus, seven at A-plus, five at A and four at A-minus. S&P has stable outlooks on all these ratings. As long as disposal laws and environmental regulations do not change substantially, it does not anticipate a substantial change to the outlooks.
Key quantitative measures that S&P examines in rating municipal solid waste systems include: revenue, liquidity and annual debt service coverage. Liquidity is measured by unrestricted days’ cash and investments.
Mean and median debt service coverage, respectively, for the AA-plus rated issuers are 4.1 and 2.4. By comparison, these figures for the A-minus issuers are 1.3 and 1.1.
The mean and median unrestricted days’ cash and investments for the AA-plus rated issuers are 412 and 221, respectively. For the A-minus rated issuers they are 51 and 28.
In assessing municipal solid waste systems, S&P also places considerable weight on qualitative factors. State-specific factors are among these. “Generally, areas that could differ from state to state are environmental laws, the power to create franchises, the magnitude of competing alternative disposal options, and the level of government responsible for implementing solid waste disposal plans,” Friedman wrote.
From state to state, “there are often differences in regulations determining issuers’ ability to raise rates and issue debt, in their required service provisions, and in their operating environments.”
In rating these systems S&P also considers the economy, the systems’ financial data and capital improvement program, the systems’ rate-setting process, the systems’ operational characteristics, management practices, and bond provisions.
On June 22 Fitch Ratings issued a report on a topic similar to S&P’s report. It is titled “Rating Guidelines for Solid Waste Revenue Bonds.”