Standard & Poor’s on Monday assigned an A rating and stable outlook to the Lehigh County Authority’s $291.5 million Series 2013 water and sewer revenue bonds to fund its Allentown, Pa., water lease concession.
In a deal that generated nationwide attention in the capital markets, county seat Allentown in May leased its utility system to the authority in exchange for a $225 million upfront concession and $500,000 annual lease payment, which the city applied mostly to its unfunded pension liability. Mayor Ed Pawlowski said that without the deal, Allentown was flirting with bankruptcy.
The Allentown-based authority, meanwhile, will continue operating its existing water and sewer system, which remains a separate entity.
The bonds are secured by a pledge of revenues under the concession agreement, defined as all revenues derived from the operation of the concessioned system. Additionally, the bonds will be secured by a $25 million debt service reserve fund to be funded upon closing.
“The rating reflects our assessment of the historical competency of the Lehigh County Authority to operate, maintain and financially manage a utility system; a relatively stable and predominately residential customer base; ample capacity and resources to fulfill customer requirements; affordable utility rates juxtaposed to area incomes, which provides for additional revenue raising flexibility; and financial projections, which illustrate adequate to strong coverage margins and robust liquidity exceeding 440 days over the life of the bonds,” said Standard & Poor’s credit analyst Paula Costa.