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HomeMy WebLinkAbout04.e. Review Moody's Annual Issuer Comment Report Page 1 of 6 Item 4.e. CENTRAL SAN September 24, 2019 TO: FINANCE COMMITTEE FROM: PHI LIP LEI BER, DI RECTOR OF FINANCEAND ADMINISTRATION REVIEWED BY: ANN SASAKI, DEPUTY GENERAL MANAGER ROGER S. BAILEY, GENERAL MANAGER SUBJECT: REVIEW MOODY'S ANNUAL ISSUER COMMENT REPORT Section XI V.B, on page 7 of Board Policy (BP) 029, Debt Management and Continuing Disclosure Policy, specifies that the Board will be briefed on communications with rating agencies: B. Board Communication The General Manager will make available to the Board any ratings report or other relevant feedback provided from rating agencies and/or investors regarding the District's financial strengths and weaknesses and recommendations for addressing any weaknesses. On August 16, 2019, Moody's, a nationally recognized statistical rating agency (more commonly known as a credit rating agency), published their annual comments on Central San, which they have rated as Aa1. Their summary includes the statement: "CCC Sanitary District's credit position is very high quality, and its Aal rating is stronger than the median rating of Aa3 for US wastewater systems. Notable credit factors include a very large system size, a strong income service area and excellent debt service coverage. It also reflects a low debt profile and ample liquidity." The report notes that the publication of the report was not a rating action. Moody's did not meet with Central San related to the publication of this report. Strategic Plan re-In 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 dated August 16, 2019 September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 121 of 128 Page 2 of 6 U.S. PUBLIC FINANCE INVESTORS ISSUER COMMENT Central Contra Costa Sanitary District 16 August 2019 Annual Comment on CCC Sanitary District RATING Revenue t Issuer Profile Aal No Outlook CCC Sanitary District provides sewer service to parts of Contra Costa County,California. The county has a population of 1,123,678 and a high population density of 1,561 people per square mile.The county's median family income is$103,598(1st quartile)and the June 2019 Contacts unemployment rate was 3.2%(1st quartile)Z.The wastewater is collected via series of sewer Eric Hoffmann +1.415.274.1702 lines and treated at the district's treatment plant. Senior Vice President/Manager eric.hoffmann@moodys.com Credit Overview CCC Sanitary District's credit position is very high quality,and its Aal rating is stronger than CLIENT SERVICES the median rating of Aa3 for US wastewater systems. Notable credit factors include a very Americas 1-212-553-1653 large system size,a strong income service area and excellent debt service coverage. It also Asia Pacific 852-3551-3077 reflects a low debt profile and ample liquidity. Japan 81-3-5408-4100 System Characteristics:Overall,the system profile of CCC Sanitary District is very strong EMEA 44-20-7772-5454 and is consistent with the assigned rating of Aal.The system size, measured as operating and maintenance expenses($84.1 million), is favorably above the US median.On the contrary, the median family income equates to a healthy 121.4%of the US level. Financial Strength:The financial position of the sewer system is superlative and is relatively strong in comparison to its Aal rating.The coverage of the annual debt service by net revenues(10.5x) is excellent and greatly exceeds the US median,and it has improved significantly between 2014 and 2018.Additionally,the debt to operating revenues(0.26x) is very strong and well below other Moody's-rated wastewater systems nationwide. Lastly,the days cash on hand (395 days) is good but lower than the US median. Legal Provisions: Legal provisions,which typically include a rate covenant requiring a minimum of 1.0x coverage of debt service,are adequate for this sector. 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 in line with US medians. Median debt service coverage(2.0 times) is on par with the national median,and median liquidity remains stable and quite healthy at 486 days cash,which is about 15% higher than the national figure. Median debt to operating revenues(2.7 times) is about 18%above the national average.Water supplies in California are 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. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 122 of 128 Page 3 of 6 MOODY'S INVESTORS SERVICE U.S.PUBLIC FINANCE EXHIBIT 1 Key Indicators 3 4 CCC Sanitary District Credit Metrics 2014 2015 2016 2017 2018 US Median Credit Trend Annual Debt Service Coverage (x) 3.50x 4.98x 8.06x 8.21x 11x 1.90x Improved Days Cash on Hand (Days) 272 272 308 344 395 565 Improved Debt to Operating Revenues(x) 0.5x 0.4x 0.3x 0.3x 0.3x 2.Sx Stable Median Family Income(%of US 120% 121% 121% 121% 121% 99% Stable Median) Remaining Useful Life of Capital Assets 28 27 27 28 30 30 Stable (Years) Debt and Financial Data($000s) 2014 2015 2016 2017 2018 US Median Net Funded Debt $35,768 $31,687 $29,304 $26,689 $24,239 $40,881 Total Revenues $98,187 $109,264 $115,418 $116,318 $124,370 $20,481 Operating and Maintenance $77,616 $81,610 $84,686 $85,198 $84,141 $10,048 Expenses Net Revenues $20,572 $27,654 $30,732 $31,120 $40,229 $8,998 Debt Service $5,881 $5,557 $3,811 $3,791 $3,818 $3,813 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 increased from 2014 to 2018 Days Cash On Hand US Median 800 600 400 200 0 2014 2015 2016 2011 2018 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 16 August 2019 Central Contra Costa Sanitary District:Annual Comment on CCC Sanitary District September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 123 of 128 Page 4 of 6 MOODY'S INVESTORS SERVICE U.S.PUBLIC FINANCE EXHIBIT 3 Debt service coverage increased from 2014 to 2018 �Net Revenues Debt Service—Debt Service Coverage–US Median Coverage 540,000 10-Ox $20,000 5.0x 50 --------- --------- --------- 0 O 2014 2015 2016 2017 2018 Source:Moody's Investors Service EXHIBIT 4 Debt to operating revenues decreased from 2014 to 2018 Debt to Revenues—Median Debt to Revenues 4.Ox 2 O 0.Ox 2014 2015 2016 2017 2018 Source:Moody's Investors Service 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 financial metrics,ability to raise rates underpin stable sector. 3 16 August 2019 Central Contra Costa Sanitary District:Annual Comment on CCC Sanitary District September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 124 of 128 Page 5 of 6 MOODY'S ©2019 Moody's Corporation,Moody's Investors Service,Inc.,Moody's Analytics,Inc.and/or their licensors and affiliates(collectively,"MOODY'S").All rights reserved. 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REPORT NUMBER 1164029 4 16 August 2019 Central Contra Costa Sanitary District:Annual Comment on CCC Sanitary District September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 125 of 128 Page 6 of 6 MOODY'S INVESTORS SERVICE U.S.PUBLIC FINANCE CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 MOODY'S INVESTORS SERVICE 5 16 August 2019 Central Contra Costa Sanitary District:Annual Comment on CCC Sanitary District September 24, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 126 of 128