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21 Oct 2010
Granite City Wastewater Treatment Plant, IL
Local Government Program Revenue Bonds, Series 2010
Expected Sale Date
NEW YORK, Oct 21, 2010 -- Moody's Investors Service has assigned an initial A1 rating to
Southwestern Illinois Development Authority's (City of Granite City Wastewater
Treatment Plant Project, IL) $3.5 million Local Government Program Revenue
Bonds, Series 2010.
The bonds are secured by the net revenues generated by the wastewater treatment
plant under an intergovernmental agreement. Bond proceeds will finance the
restoration, electrical, mechanical, and capital improvements to the city's
wastewater treatment plant. Assignment of the A1 rating reflects the system's
moderately sized tax base, satisfactory projected financial operations bolstered
by unlimited rate setting authority, and manageable debt profile with
limited near term borrowing plans.
MODERATELY SIZED TAX BASE WITH SIGNIFICANT INDUSTRIAL AND COMMERCIAL
We believe the system's moderate tax base will remain stable and continue to
experience long-term growth due to its favorable location within the St. Louis
metro area, its diverse economy and with access to major transportation routes.
Under an intergovernmental agreement entered upon in 1984, the City of Granite
City provides sewer treatment to the regional participants which include Granite
City (51% usage allocation), the Metro East Sanitary District (23%
usage allocation), Madison County Special Service Area #1 (17% usage
allocation), and the Village of Glen Carbon (9% usage allocation). Notably, in
conjunction with the current borrowing, the intergovernmental agreement has been
amended to terminate no earlier than 2030 (after debt service is defeased).The
treatment system is projected to serve an estimated population of 66,657,
according to 2009 figures. The economic base in the region is represented by a
diverse mix of industrial and commercial users which comprise a combined 84.5%
of total system usage, while the residential component accounts for a more
modest 15.5% of use. Major underlying users of the treatment plant include Kraft
Foods, American Steel, and Prairie Farms Dairy. Notably, several of the system's
industrial users pre-treat sewer flow, which reduces the overall impact on the
treatment plant. Unemployment rates across the regional users, though elevated,
mirror state levels.
SATISFACTORY PROJECTED FINANCIAL OPERATIONS
The system is projected to maintain a satisfactory financial
position, sufficient to meet debt service coverage and operating needs,
thru regular rate increases and steady operating expenditures. The
regional board regularly reviews and establishes wholesale rates, which
factor in 2% to 5% growth in operating expenditures. Officials project modest
and regular rate increases through the maturity of the current offering of
approximately 3%. Favorably, the board has sole rate setting authority and is
authorized to adjust rates adopted in the ordinance in order to maintain
sufficient debt service coverage ratios. The wastewater treatment plant is owned
and operated by the City of Granite City and each of the underlying users is
responsible for collection and transport. Notably, the city's audited financial
statements do not segregate the overall wastewater treatment plant operations
from city's sewer collection operations. Despite this, we note management's
internal reporting which adequately segregates and reports the financial
operations of the two accounts. In addition, wastewater treatment plant revenues
flow directly to a separate account held by the city to meet all legal
covenants. Favorably, board officials have adopted in resolution to hold $1.3 to
$1.5 million in reserves for capital and contingency purposes strictly for
treatment plant operations. In addition, the city has pre-funded approximately
$795,000 from reserves a depreciation, improvement, and extension account. Legal
provisions include a 1.25 times rate covenant and a debt service reserve account
funded at maximum annual debt service.
MANAGEABLE DEBT POSITION WITH LIMITED BORROWING PLANS
We expect the utility to maintain a manageable debt position given
increasing operating revenues and limited borrowing plans. Pro-forma projections
indicate projected annual debt service coverage of 2.23 times after
subordination of the city's outstanding state EPA loans. Payout of the current
borrowing over ten at 40.5%, though below average, meets the useful life of the
assets financed. Legal provisions include an additional bonds test of 1.25
times maximum annual debt service (MADS). Officials report no formal plans for
additional debt at this time.
Population (Intergovernmental agreement participants, Estimated 2009): 66,657
Fiscal 2011 projected debt service coverage: 2.23 times
Payout (10 years): 40.5%
Rate Covenant: 1.25 times
Additional Bonds Test: 1.25 times
Debt Service Reserve: Maximum annual debt service
Post-Sale Revenue Debt Outstanding: $3.5 million
The principal methodology used in rating Southwestern Illinois
Development Authority was Analytical Framework For Water And Sewer System
Ratings rating methodology published in August 1999. Other methodologies and
factors that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, public
information, confidential and proprietary Moody's Investors Service's
information, confidential and proprietary Moody's Analytics' information.
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
Mark G. Lazarus
Public Finance Group
Moody's Investors Service
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS INITIAL A1 RATING TO SOUTHWESTERN ILLINOIS DEVELOPMENT AUTHORITY'S (CITY OF GRANITE CITY WASTEWATER TREATMENT PLANT PROJECT, IL) $3.5 MILLION LOCAL GOVERNMENT PROGRAM REVENUE BONDS, SERIES 2010
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
No Related Data.
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