Fitch Ratings confirms city’s water and sewer revenues’ A+ rating

Published 12:00 am Friday, September 2, 2016

SALISBURY — Fitch Ratings has affirmed the city’s A+ rating on its combined enterprise system refunding revenue bonds, series 2010, also affirming that the rating outlook is stable.

The announcement from Fitch Ratings, a credit ratings and research company, was posted on Business Wire.

The combined enterprise system refunding revenue bonds, series 2010, amounts to $12.87 million.

According to Fitch Ratings, one factor that impacted the rating was the improvement of liquidity balances and debt service coverage in fiscal year 2015. Liquidity fell to under 200 days of cash on hand in fiscal year 2013, but increased to almost 300 days of cash on hand in fiscal year 2015.

In 2012, the net operating income covered the debt service an average of 1.4 times, while in 2015 that improved to 1.6 times. A debt service coverage ratio of more than one indicates that the system has enough cash coming in to cover the debt service.

The management at Fitch predicts that the improvement will continue through fiscal year 2018.

Fitch also said the debt is being reduced quickly, “providing sufficient capacity for planned issuances over the next six years.” It expects debt per capita ratio to “remain relatively flat,” even though there are plans to debt finance more than 50 percent of the system’s capital improvement plan.

Another factor of the good rating was the fact that water and sewer provides a service that is essential to different areas and its “water supply and treatment capacity are well in excess of demand,” Fitch stated.

Rates for service are relatively high compared to the income levels of the service area, but the regular increases have helped ensure financial margins, Fitch stated.

One thing that could negatively affect the rating in the future is if more money is loaned to Fibrant, the city’s broadband network, from Salisbury-Rowan Utilities.

“The system’s historical involvement in supporting the operations of Fibrant creates possible ongoing operating risk to the system’s credit profile…” Fitch stated. “If Fibrant again becomes reliant on support from the system, system financial margins would be negatively affected.”

The city has said that the money saved from refinancing of Fibrant’s debt will be used to increase the rate of repayment of the Salisbury-Rowan Utilities loan. The City Council approved the contract to refinance at the last meeting on Sept. 16.

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