Rating Action: Moody's assigns Aa2 to City of Bellingham, WA's water and sewer enterprise revenue refunding bonds
Global Credit Research - 10 Aug 2020
New York, August 10, 2020 -- Moody's Investors Service has assigned Aa2 ratings to the City of Bellingham, Washington Water and Sewer Enterprise's $19.0 million Water and Sewer Revenue Refunding Bonds, 2020A (Taxable) and $30 million Water and Sewer Revenue Refunding Bonds, 2020B (Delayed Delivery Bonds). Concurrently, Moody's has maintained the Aa2 ratings of the water and sewer enterprise's outstanding revenue bonds, most of which is expected to be refunded and defeased except for $2.5 million of bonds issued in 2015, which Moody's does not rate.
RATINGS RATIONALE
The Aa2 ratings reflect the size and stability of the water and sewer enterprise's predominantly residential service area. Although the coronavirus pandemic has significantly increased unemployment in the area and substantially weakened the local economy, the critical nature of the services and their relative affordability suggest continued low delinquency rates. Debt service coverage and liquidity metrics are incredibly strong, though significant capital plans over the next five years will likely result in substantial growth in debt, more moderate coverage levels and thinner liquidity.
RATING OUTLOOK
Outlooks are not typically assigned to local government credits with this amount of debt outstanding.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Sustained levels of above-average debt service coverage and liquidity
- Growth in the size and wealth measures of the service area
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material contraction in debt service coverage or liquidity below similarly rated peers
- Substantial increase in financial leverage beyond our current expectations
LEGAL SECURITY
The bonds are secured by the net revenue of the water and sewer enterprise. The bonds will additionally be secured by a reserve fund sized at the lesser of a standard three-prong test, though the reserve funds will likely be released once the 2015 bonds mature in 2026.
USE OF PROCEEDS
Bond proceeds will be used to refund for savings most of the water and sewer enterprise's outstanding senior lien debt.
PROFILE
The City of Bellingham, Washington's water and sewer enterprise is comprised of a water system that provides both wholesale and retail water service and a sewer system that provides wastewater conveyance and treatment services. The water system provides retail water system to the incorporated city and portions of its unincorporated urban growth area and provides wholesale water service to several water districts and small purveyors adjacent to the city. The sewer system serves the city and certain surrounding areas. The water system had 27,201 customer accounts in 2019 while the sewer system had 24,469.
METHODOLOGY
The principal methodology used in these ratings was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
William Oh Lead Analyst Regional PFG West Moody's Investors Service, Inc. One Front Street Suite 1900 San Francisco 94111 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Michael Wertz Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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