SAN FRANCISCO - Stockton, Calif.'s wastewater revenue bonds received a ratings boost ahead of a $79 million refunding deal.
Standard & Poor's raised its rating on Stockton Public Financing Authority water revenue debt to A-minus from BBB-plus, with a stable outlook, citing ongoing improvement in the financial operations of the wastewater fund.
The deal was also rated A-minus by Fitch Ratings.
"We are very pleased with the new ratings and the recognition by the ratings agencies that Stockton has remained steadfast in maintaining its solid footing with respect to its enterprise services," City Manager Kurt Wilson said in a statement. "Investors and rating agencies have recognized that these services are supported by restricted funds and that the city has managed its finances responsibly."
The improved credit rating will allow Stockton to save money with a lower cost of borrowing, the city said.
The wastewater revenue bond refunding deal is expected to price Sept. 9. Citi is the lead underwriter on the deal. Orrick, Herrington & Sutcliffe LLP is serving as bond counsel and Del Rio Advisors, LLC is the financial advisor.
The enterprise debt has been unaffected through the city's ongoing Chapter 9 bankruptcy.
"To the best of our understanding, all cash balances attributable to the wastewater fund continue to be available solely for wastewater operations," Standard & Poor's analysts said. "In addition, wastewater fund revenues have not been diverted to fund general government operations. We expect these practices to continue."
Fitch Ratings analysts said the authority's financial performance is expected to decline, but projected debt service coverage levels demonstrate sufficient strength at the current rating level.
Fitch expects the wastewater system's strong debt profile to worsen over the next few years as the system implements its five-year capital improvement project.
"Projects relating to the outstanding 2008 and new 2014 National Pollution Discharge Elimination System permits will be costly and, as the system expects to fund the majority of such projects with new debt, will likely result in a below-average debt profile," Fitch said.
The system provides wastewater service to Stockton and eight service districts. The total population served is approximately 330,000 through 140,500 connections, the large majority of which are residential customers.
The $79 million deal will refund bonds originally issued in 1998 and 2003 to fund wastewater system projects.
According to preliminary estimates, the refunding is expected to garner $5.6 million in net present value savings.
The bonds will be secured by installment payments from Stockton to the authority, payable from a senior-lien pledge of net revenues of the city's wastewater system. They will have a final maturity in 2029.
Fitch Ratings Thursday gave Stockton another boost with a two-notch upgrade to outstanding water revenue bonds, bringing $78.3 million in debt to A-minus and another $170.2 million in debt to BBB-plus.