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HomeMy WebLinkAbout04.c. Review Moody's Annual Issuer Comment ReportPage 1 of 7 Item 4.c. Central Contra Costa Sanitary District November 21, 2017 TO: FINANCE COMMITTEE FROM: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION REVIEWED BY: THEAVASSALLO, FINANCE MANAGER ANN SASAKI, DEPUTY GENERAL MANAGER ROGER S. BAILEY, GENERAL MANAGER SUBJECT: REVIEW MOODY'S ANNUAL ISSUER COMMENT REPORT Consistent with the District's adopted Debt Policy, staff is providing the Board with this ratings update from Moody's. The Aa1 rating is unchanged. This is an abbreviated annual update, rather than a full opinion of the type that would be issued by Moody's in connection with a new bond offering. As such, it provides little in the way of commentary specific to Central San, but rather follows a general format and provides certain Key Indicators on the second page. Moody's provided the opinion in draft form to Central San staff with limited opportunity to review for factual accuracy. Staff did so, and proposed certain changes, some of which were adopted, some of which were not. Staff aimed to validate all of the figures shown in the Key Indicators and was able to do so for most. That said, each rating agency calculates some indicators differently, making various adjustments as they aim to report various entities' financial results in a consistent manner using their format. In so doing, some costs are categorized differently by each rating agency, or differently than staff might. With that said, this opinion affirms that Central San's financial position is strong. This validates the conservative financial management this Board has provided for ratepayers, and also provides a solid foundation for funding future capital needs. GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct Long -Range Financial Planning ATTACHMENTS: 1. Moody's Annual Issuer Comment Report November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 210 of 219 Page 2 of 7 ISSUER COMMENT 3 November 2017 RATING Revenuel Aal No Outlook Contacts Nathan Carley 312-706-9958 Associate Analyst nathan.cartey@moodys.com Eric Hoffmann 415-274-1702 Senior Vice President/ Manager eric.hoffmann@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Central Contra Costa Sanitary District Annual Comment on CCC Sanitary District Issuer Profile Central Contra Costa Sanitary District provides sewer service to parts of Contra Costa County, California. The county as a whole has a population of 1,096,068 and a high population density of 1,522 people per square mile. The county's median family income is $95,824 (1st quartile) and the August 2017 unemployment rate was 4.5% (3rd quartile) z The wastewater is collected via series of sewer lines and treated at the district's treatment plant. Credit Overview The credit position for CCC Sanitary District is very strong. Its Aal rating is slightly higher than the median rating of Aa2 for US wastewater systems. Key credit factors include a very large system size with above average income service area, healthy debt service coverage, a negligible debt profile and solid liquidity. System Characteristics: CCC Sanitary District has a very strong system profile overall, which is aligned with the assigned rating of Aal. The system size, measured as operating and maintenance expenses ($84.7 million), is favorably larger than the US median. In addition, the median family income is a healthy 120.5% of the US level. Financial Strength: The financial position of CCC Sanitary District is superlative and is relatively strong with respect to its Aal rating. The coverage of the annual debt service by net revenues (8.1x) is excellent and greatly exceeds the US median, and it has gone up significantly from 2012 to 2016. Moreover, the debt to operating revenues (0.33x) is very strong and well below other Moody's-rated wastewater systems nationwide. Lastly, the days cash on hand (308 days) is satisfactory but lower than the US median. Legal Provisions: Legal provisions are adequate for this sector, which typically include a rate covenant requiring a minimum of 1.Ox coverage of debt service. Sector Trends - California Sewer Water and sewer systems in California tend to be slightly newer than the national average, though maintenance and expansion needs can be substantial. Financial metrics are generally modestly stronger than US medians. Median debt service coverage (2.0 times) is on par with the national median, and median liquidity is quite healthy at 490 days cash. Median debt to operating revenues (2.7 times) is about 18% above the national average. Water supplies in California are relatively scarce, highly variable, and concentrated in the state's north, while demand is concentrated in the Central Valley and the urban south. Rate -setting autonomy supports stability in finances. November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 211 of 219 Page 3 of 7 Source: Moody's Investors Service This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 212 of 219 EXHIBIT 1 Key Indicators 3 4 CCC Sanitary District Credit Metrics 2012 2013 2014 2015 2016 US Median Credit Trend Annual Debt Service Coverage (x) 4.69x 4.49x 3.50x 4.98x 8.06x 2.00x Improved Days Cash on Hand (Days) 335 311 272 272 308 577 Stable Debt to Operating Revenues (x) 0.7x 0.6x 0.5x 0.4x 0.3x 2.8x Stable Median Family Income (% of US Median) 119% 118% 120% 121% 121% 97% Stable Remaining Useful Life of Capital Assets 28 28 28 27 27 31 Stable (Years) Debt and Financial Data ($000s) 2012 2013 2014 2015 2016 US Median Net Funded Debt $43,564 $39,731 $35,768 $31,687 $29,304 $41,948 Total Revenues $90,408 $90,711 $98,187 $109,264 $115,418 $20,244 Operating and Maintenance $64,285 $67,141 $77,616 $81,610 $84,686 $9,428 Expenses Net Revenues $26,123 $23,570 $20,572 $27,654 $30,732 $10,116 Debt Service $5,567 $5,250 $5,881 $5,557 $3,811 $3,457 GovernancelLegal Provisions Score Rate Management Aa Regulatory Compliance and A Capital Planning Rate Covenant Aa Debt Service Reserve Aa Requirement Source: Moody's Investors Service EXHIBIT 2 Days cash on hand has decreased from 2012 to 2016 Days Cash On Hand US Median Soo 600 400 200 0 2012 2013 2014 2015 2016 Source: Moody's Investors Service This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 212 of 219 EXHIBIT 3 Debt service coverage increased from 2012 to 2016 � Net Revenues Debt Service — Debt Service Coverage – US Median Coverage $40,000 10 -Ox $20,000 5 O $0 0 O 2012 2013 2014 2015 2016 Source: Moody's Investors Service EXHIBIT 4 Debt to operating revenues decreased from 2012 to 2016 Debt to Revenues + Median Debt to Revenues 4.Ox 2 O 14I4a Source: Moody's Investors Service 2012 2013 2014 2015 2016 Page 4 of 7 3 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 213 of 219 Page 5 of 7 Endnotes 1 The rating referenced in this report is the rating of the senior most lien on the relevant pledged revenues. Some utilities have bonds separately secured by distinct revenue sources. For these utilities, the rating referenced in this report is the senior most rating only on the relevant revenue pledge (e.g., water); the utility could have a higher rating on a different type of revenue bond (e.g., sewer). 2 The demographic data presented, including population, population density, per capita personal income and unemployment rate are derived from the most recently available US government databases. Population, population density and per capita personal income come from the American Community Survey while the unemployment rate comes from the Bureau of Labor Statistics. The largest industry sectors are derived from the Bureau of Economic Analysis. Moody's allocated the per capita personal income data and unemployment data for all counties in the US census into quartiles. The quartiles are ordered from strongest -to -weakest from a credit perspective: the highest per capita personal income quartile is first quartile, and the lowest unemployment rate is first quartile. 3 Moody's calculations of various statistics can be different than calculations reported in audited financial statements or offering documents. Moody's makes standard adjustments to reported financial data, to facilitate comparisons across issuers. For definitions of the metrics in the Key Indicators Table, see our US Municipal Utility Revenue Debt methodology. 4 The medians come from our most recently published report, Medians — Solid Operating Performance Exemplifies Stable Sector. 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 214 of 219 Page 6 of 7 © 2017 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ("MIS") ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES, AND MOODY'S PUBLICATIONS MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES. 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REPORT NUMBER 1084215 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 215 of 219 Page 7 of 7 CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 E M EA 44-20-7772-5454 MOODY'S INVESTORS SERVICE 6 3 November 2017 Central Contra Costa Sanitary District: Annual Comment on CCC Sanitary District November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 216 of 219