San Francisco water supplier earns rating boost ahead of sale

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The Public Utilities Commission of the City and County of San Francisco received a ratings boost ahead of plans to price $662.7 million in taxable water revenue refunding bonds next week.

The SFPUC’s water enterprise revenue bonds were upgraded to Aa2 from Aa3 by Moody's Investors Service, which also assigned an Aa2 rating with a stable outlook to the bonds pricing next week. Moody’s also upgraded the rating on the enterprise’s subordinate lien bank bonds to Aa3 from A1.

Moody’s analysts cited “the consistency and projected stability of the system’s financial operations, strong water supplies, and a large, wealthy, and diverse service area that can readily absorb planned multi-year increases.”


The water enterprise provides water to nearly 2.7 million retail customers and 27 public and private water agencies in San Francisco County and three surrounding counties.

Morgan Stanley and Goldman Sachs are lead managers on the bonds pricing Dec. 10 in three series: the $628.3 million Series A green bonds, $16.4 million Series B, and $17.9 million Series C. Moody’s also assigned the improved rating to $28.5 million 2019 sub-series D federally taxable green bonds not included in the sale.

The fixed rate taxables are being issued to refund and defease all or a portion of various series of the SFPUC’s outstanding bonds and pay the costs of issuance. The green bonds received certification as green bonds from the Climate Bonds Initiative. Sustainalytics provided a third-party verification that the 2019- sub-series A bonds are aligned with the Climate Bonds standard.

S&P Global Ratings assigned an AA-minus rating and stable outlook.

“The long-term rating reflects the combination of an extremely strong enterprise risk profile and a strong financial risk profile,” said S&P Global Ratings analyst Chloe Weil.

The stable outlook hinged on SFPUC’s ability to continue to raise rates to support its large capital plan and growing debt requirements, S&P analysts wrote.

The water enterprise plans to raise retail rates 6.4% annually from fiscal year 2018-19 through fiscal year 2023-24 and to resume rate increases on its’ wholesale customers at 15.1% in fiscal year 2023 and 8.3% in fiscal year 2024, but none prior.

It has a 10-year capital plan through fiscal year 2029 totaling $2.5 billion. Over the next five years it plans to spend $1.3 billion in revenue bonds, a parity state loan and cash to support regional water projects, local water projects and for improvements to the Hetchy Hetchy Water system.

The 14-year water system improvement program targeting aging infrastructure, improving the ability to withstand earthquakes and enhancing environmental features is 98% complete and is expected to be done by fiscal year 2022. All funding for that program has been allocated.

SFPUC has $4.3 billion in outstanding parity lien debt, some of which will be refinanced in the upcoming deal. It also has subordinate debt including $400 million in commercial paper notes, an up to $100 million bank revolving credit agreement and $142 million in outstanding Golden Gate certificates of participation, of which 71.4% are allocated to the water enterprise.

Montague DeRose & Associates, Backstrom McCarley Berry & Co. Vincent McCarley are co-financial advisors. Norton Rose Fulbright U.S. LLP is bond counsel and Orrick Herrington & Sutcliffe is disclosure counsel.

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