Some $446 million in outstanding debt issued by Truckee Meadows Water Authority was upgraded by all three rating agencies, just in time for a competitive sale of $40 million in revenue bonds.
Merrill Lynch & Co. won Wednesday’s auction, bidding a true interest cost of 4.7401% for the bonds, insured by MBIA Insurance Corp.
Standard & Poor’s ratcheted up its rating on the authority’s underlying debt to A from BBB-plus, with a stable outlook, and gave the same to the upcoming issuance.
Fitch Ratings upped the grade on the underlying debt to A from A-minus, while also applying it to the latest offering.
The rationale: “proven financial performance and continued strong management actions,” said Michael Borgani, an analyst at Fitch.
Meanwhile, Moody’s Investors Service raised its evaluation of the authority’s $446 million in outstanding debt to A1 from A3, and extended the rating to the $40 million new issue.
The upgrade “reflects the authority’s healthy cash reserve levels, a relatively large and highly diverse customer base, and ample supplies of generally high-quality water,” Moody’s analyst Patrick Ford said.
Although the authority carries a high debt burden, analysts say it is offset by the relatively modest size of the entity’s additional capital needs, which amount to slightly more than $335 million over the course of ten years.
Furthermore, the debt coverage ratio has averaged 1.93 during the past three years.
“We expect management to implement rate increases as needed,” said Joon Kang, an analyst at Standard & Poor’s, noting that the authority plans annual hikes of 2.5% over the next decade.
Proceeds from the latest issuance will fund the construction of a new operations center as well as storage and distribution facilities.
