INITIAL A1 RATING ASSIGNMENT AFFECTS CURRENT SALE ONLY; Aa3 RATING AFFECTS $4.1 MILLION IN OUTSTANDING DEBT
San Antonio River Authority, TX Swr. Ent.
Wastewater System Revenue Bonds, Series 2010
Expected Sale Date
NEW YORK, Nov 11, 2010 -- Correction to Sale Amount
Moody's Investors Service has assigned an initial A1 underlying rating to San
Antonio River Authority's (SARA), TX Wastewater System Revenue Bonds, Series
2010. At the same time, Moody's has affirmed the Aa3 rating on the
Martinez-Salatrillo Creeks Sewage System Revenue Refunding and Improvement
Bonds, Series 2003, affecting $4.1 million in outstanding debt. Proceeds from
the sale of the bonds will be used to expand the Martinez II system to a
total capacity of 3.5 million gallons a day (MGD) from 2 MGD.
The Series 2010 bonds are secured by a first lien and pledge of the net revenues
of the SARA Wastewater Utility System, also known as the Martinez Creek System,
provided that they are subordinate to the 2003 Series Martinez-Salatrillo
Revenue bonds, as long as they are outstanding. The Series 2003 bonds are
secured by the combined net revenues of the authority's Martinez-Salatrillo
Wastewater System. The rating assignment reflects the growing customer base of
the system, although the rate of growth has moderated recently, historically
favorable debt service coverage ratios reflecting sound fiscal practices, and
adequate legal covenants.
SERVICE AREA BENEFITS FROM A STABLE ECONOMIC BASE IN SAN ANTONIO
The system serves a largely residential community located in Bexar
County (Aaa/NOO), in the San Antonio (Aaa/NOO) area. The City of San Antonio
benefits from a stable economy with a local employment base that includes a mix
of aerospace, financial, health care, military and tourism industries.
Historically, average customer connections grew by 3% to 5% annually, although
the rate of growth has moderated in the recent term as evident by the
decrease in impact fees, due to challenges associated with the national
economy. Going forward, officials anticipate growth averaging 2% to 3% in the
near term with more moderate growth over the long term, given the availability
of land. Officials report no major infrastructure problems with the system. The
authority has a ten-year capital projects plan which is reviewed annually to
align correctly with more pressing capital needs.
The San Antonio River Authority (GO rated Aaa/NOO) owns two wastewater systems:
Salatrillo Creek Wastewater System that serves wholesale customers, and the SARA
Wastewater Utility System (also known as the Martinez Creek System) that serves
retail customers. The SARA Wastewater Utility System consists of four plants:
three located in the Martinez Creek Watershed, and one located in the
Calaveras Creek Watershed. The Martinez I plant operates near its capacity of
2.2 MGD, with all excesses diverted to the Martinez II plant, which has a
capacity of 2 MGD. Currently, the Martinez II plant operates at an average daily
flow of 1.96 MGD, with an expansion to 3.5 MGD expected to be completed in FY
2011, with the current issuance. Currently, the system serves approximately of
9,500 connections. After expansion, the system will be sufficient to serve
15,300 connections, which is the anticipated total connection at build out,
estimated to be in 30 years.
DEBT SERVICE COVERAGE REMAINS SATISFACTORY CONSIDERING EFFECTS OF
We believe the authority's historical practice of sufficient rate setting and
strong financial management will continue to provide satisfactory debt service
coverage. Over the past six years, the authority has exhibited strong fiscal
management that has consistently maintained favorable debt service coverage
levels well above 2.0 times. The security of the Series 2003 bonds is provided
by the combined net revenues of the Martinez-Salatrillo Wastewater System
although the bonds have historically been paid by the SARA Wastewater Utility
(Martinez Creek) system. As such, the following discussion includes the Series
2003 bonds as the sole responsibility of the SARA Wastewater Utility System. In
fiscal year 2009, debt service coverage was an ample 4.45 times with maximum
annual debt service coverage (MADS) for prior lien (Series 2003) at a healthy
5.45 times. When considering the Series 2010, MADS decreased to a still
favorable 1.94 times. In fiscal year 2010, coverage numbers reduced
significantly due to sizable decreases in impact fees. The debt service coverage
was a smaller, but still favorable 3.0 times, with a MADS for prior lien of a
solid 3.92 times. Including the series 2010, MADS reduced substantially to an
adequate 1.39 times. Due to challenges in the economy, impact fees reduced to
$186,000 in fiscal year 2010 from $1.1 million in fiscal year 2009. To
compensate for the decrease in revenues and in anticipation of the current sale,
officials increased rates by 8.95% effective for fiscal year 2011, and another
6% for fiscal year 2012. Despite the increases, the authority's rates remains
comparable with surrounding areas, and the authority has limited competition due
to a defined service area. Additionally, the board has authority to set rates
without approval from an oversight authority, and Moody's believes this adds
strength to the credit quality of the authority.
ADEQUATE LEGAL COVENENTS PROVIDES BOND HOLDER SECURITY
Bond holder security is provided by a rate covenant equal to 1.10 times the
average annual debt service, with an additional bonds test that calls for 1.25
times average annual debt service coverage, giving consideration to the effect
of the additional bonds. Legal provisions also call for a debt service fund
equal to the average annual debt service, which will be funded over 60 months.
Additionally, the authority covenants that it will not issue any debt that is
superior to the Series 2010 bonds as long as the bonds are outstanding.
FY 2010 Customer Connections: 9,500
FY 2010 Operating Ratio: 89%
FY 2010 Debt Ratio: 18.6%
FY 2010 Outstanding Debt Service Coverage: 3.0 times
FY 2010 Outstanding Debt Service Coverage (without impact fees): 2.67 times
FY 2010 MADS for prior lien: 3.92 times
FY 2010 MADS for all outstanding debt: 1.39 times
The principal methodology used in this rating was Analytical Framework For Water
And Sewer System Ratings published in August 1999.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, and public
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
CORRECTION TO NOV. 11, 2010 RELEASE: MOODY'S ASSIGNS A1 RATING TO SAN ANTONIO RIVER AUTHORITY'S (TX) WASTEWATER SYS. REV. BONDS, SERIES 2010. MOODY'S AFFIRMS Aa3 RATING ON THE MARTINEZ-SALATRILLO CREEKS SEWAGE REV. REFUNDING & IMPROV. BONDS, SERIES 2003
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