Suffolk County, N.Y., has scheduled an $83.6 million competitive sale of Series 2012 water system revenue refunding bonds for Thursday.
The proceeds will refund outstanding parity bonds. The authority expects present value savings of more than $6 million, according to chief financial officer Larry Kulick. The bonds will mature from 2019 through 2026.
Goldman, Sachs & Co. is the financial advisor. Nixon Peabody LLP is bond counsel. Bank of New York Mellon is the refunding trustee.
Fitch Ratings has assigned a AAA rating on the fixed-rate, tax-exempt bonds, while Standard & Poor’s has rated them AA-plus. Both assign stable outlooks. The same ratings apply to the authority’s long-term debt and bond anticipation notes, which Kulick said stood at $575 million and $170 million, respectively.
The bonds reserve will be funded by cash, Kulick said. The bonds are serial and have an optional redemption provision on or after Dec. 1, 2021.
“The authority’s financial performance continues to exhibit strong operating margins, good debt service coverage and healthy cash balances,” Fitch said in a rating profile. The water agency, said Fitch, withstood some weakening in fiscal 2010 as management elected to hold rates steady, and wet weather conditions and increasing conservation efforts triggered a drop in demand.
Rates held again in fiscal 2011, but dry conditions generated higher consumption levels and a sizeable increase in operating revenue.
The authority projects $292 million of capital spending over five years, consisting of main installation; continued implementation of an automatic meter reading system, which it expects to phase in over 10 years; upgrades to treatment facilities; and remediation projects.
According to Fitch, the agency expects capital funding to come from a 2011 note issuance completed late last year, an additional $100 million in bonds planned for 2013, and cash reserves.
“Debt amortization is average, debt levels are moderately low and capital spending typically doubles annual deprecation, indicating that system assets are well maintained,” Fitch wrote.
Standard & Poor’s based its rating on the high-end demographics of the county, which serves eastern Long Island, and effective operations, with a “virtually unlimited” water supply through three major aquifers.
Although the rating agency cited the authority’s traditionally strong debt service coverage, it said the authority’s need to raise rates to maintain debt coverage near current levels to fund capital needs is an offsetting factor.
“The stable outlook reflects what we consider SCWA’s sound water system management with conservative financial practices, strong [debt service coverage], and strong system liquidity,” said S&P, which expects the rating to hold for two years.
The authority, which operates one of the largest groundwater systems in the United States, provides water service to 85% of Suffolk County residents.
Founded in 1951, operates without taxing power on a not-for-profit basis. It can set rates without approval of the New York Public Service Commission or the Suffolk County Legislature, which Fitch considers a credit strength.
