Mayor and Members of the City Council:
As you may recall, City staff has been working with our finance team on a $35.4 million debt financing to fund capital improvements for the wastewater enterprise. As part of this project, we sought a credit rating from S&P Global Ratings. We are pleased to inform you that we received the rating and credit report from S&P today, and the bonds were rated by S&P as a AA- credit, with a stable outlook. As a point of reference, S&P’s definition for the AA category states, “An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitments on the obligation is very strong.” The stable outlook “means that a rating is not likely to change.”
Click here for the full credit report from S&P. An excerpt from their credit summary is as follows:
S&P Global Ratings assigned its 'AA-' long-term rating to Richmond, Calif.'s series 2017 wastewater revenue bonds. At the same time, S&P Global Ratings affirmed its 'AA-' long-term rating and underlying rating (SPUR) on the city's existing parity-lien bonds. The outlook is stable. The rating reflects, in our opinion, the wastewater system's very strong enterprise risk and financial risk profiles.
The enterprise risk profile reflects our view of the wastewater system's:
· Built-out service area in the San Francisco Bay area, with good income metrics and access to the broad and diverse San Francisco-Oakland-Hayward metropolitan statistical area (MSA);
· Stable, primarily residential, and very diverse customer base;
· Affordable sewer service rates, with reduced exposure to delinquencies through a strong collection mechanism; and
· Very low industry risk as a monopolistic service provider of an essential public utility; and
· Standard operational management assessment based on the system's continual efforts to decrease sewer system overflows during wet weather events and exposure to increasingly stringent regulatory requirements.
The financial risk profile reflects our view of the wastewater system's:
· Strong all-in coverage metrics that we believe will continue during the next five years;
· Very strong liquidity, with about $20.7 million of cash as of June 30, 2016;
· Highly leveraged system based on a pro forma debt-to-capitalization ratio of about 84.8%, which we believe is manageable given the city's strong all-in coverage and very strong liquidity; and
· Good financial management practices and policies that consist of comprehensive long-term financial and capital planning.
We have applied a one-notch negative adjustment from the initial indicative rating to arrive at the final rating based on the city's continual efforts to comply with stringent regulatory requirements. In addition, to comply with regulatory requirements, the city will need additional financing, which may increase annual debt service payments.
Please feel free to contact me if you have any questions or require any additional information.
City of Richmond, California