Pueblo Board of Water Works, CO Revenue Bond SPUR Raised To 'AA-' On Good Coverage And Strong Liquidity

Stocks and Financial Services Press Releases Monday September 28, 2009 09:31
Bangkok--28 Sep--Standard & Poor's

Standard & Poor's Ratings Services raised its underlying rating (SPUR) to 'AA-' from 'A+' on the Pueblo Board of Water Works, Colo.'s outstanding water revenue bonds. In addition, Standard & Poor's assigned its 'AA-' rating to the board's series 2009A and 2009B taxable (Build America Bonds -- Direct Payment) water revenue bonds. The outlook is stable.

"The raised ratings reflect the board's track record of strong liquidity levels and good coverage ratios, as well as its willingness to adjust rates as necessary," said Standard & Poor's credit analyst Bryan Moore.

The board intends to issue series 2009B as Build America Bonds (BABs) and has elected to receive cash subsidy payments from the U.S. Treasury in an amount equal to 35% of interest payable on the series 2009B taxable bonds.

We believe the system's strong liquidity represents a key credit strength. Audited fiscal 2008 system liquidity was $20.1 million, what we consider a strong 376 days' operations. In our opinion, the system's net revenues have generated historically strong annual coverage ratios of 1.7x or greater from fiscal 2004 to fiscal 2008. Board-projected fiscal 2009 net revenue, excluding the one-time sale of water rights from the Columbine Ditch, would provide a coverage ratio of 1.2x average annual debt service, or 1.0x MADS, on outstanding parity bonds and the proposed bonds. Pro forma MADS occurs in November 2015. If including the BABs subsidy, coverage of outstanding and pro forma average annual debt service by projected fiscal 2009 net revenue would increase slightly to 1.3x. Although these coverage ratios are lower than historical levels, the board reported that it plans to continue to raise rates and will maintain cash reserves at or near the current levels, which we consider strong. The board is projecting a 15% increase in water sales for fiscal 2010, which we believe may be optimistic given that sales for fiscal 2009 declined by 2% despite a 4.75% rate increase. Additionally, the board has thus far only adopted a rate increase of 3.75%, and it plans to raise rates another 4.25% for fiscal 2010. Based on the board's aforementioned revenue forecast in 2010, the estimated average annual debt service coverage ratio would increase to 1.7x with the BABs subsidy.

The Pueblo Water Works serves a population of 108,269 concentrated on the City of Pueblo, 45 miles south of Colorado Springs.
RELATED RESEARCH
USPF Criteria: "Key Water And Sewer Utility Credit Ratio Ranges," Sept.15, 2008

Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.

Media Contact:
Ana Sandoval, New York (1) 212-438-5095, ana_sandoval@standardandpoors.com
Analyst Contacts:
Bryan A Moore, San Francisco (1) 415-371-5077
Matthew Reining, San Francisco (1) 415-371-5044
Key Contacts:
Americas Media Relations: (1) 212-438-6667
media_ relations@standardandpoors.com
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