St. Paul, MN Sewer Debt Outlook Revised To Negative On Lower #AAA# Rating Affirmed

Stocks and Financial Services Press Releases Wednesday March 8, 2017 10:01
CHICAGO--8 Mar--S&P Global Ratings
CHICAGO (S&P Global Ratings) March 7, 2017--S&P Global Ratings revised theoutlook on its 'AAA' rating on St. Paul, Minn.'s sewer revenue debt tonegative from stable.

At the same time, S&P Global Ratings assigned its 'AAA' rating and negativeoutlook to St. Paul's series 2017C sewer revenue refunding bonds and affirmedits 'AAA' rating on the city's existing sewer revenue debt.

"The negative outlook is based on our opinion that there is at least a one-in-three chance that the rating could be lowered in the next two years," saidS&P Global Ratings credit analyst Gregory Dziubinski.

The outlook change is based on our review of the city's all-in debt servicecoverage (DSC), which declined since our most recent review in October 2016.The coverage was evaluated based on our understanding of a certain portion ofthe sewer fund's transfers out. Even though the transfers out of the utilityare subordinate to the repayment of the sewer system's revenue bonds, ourcriteria focuses on a cash-flow coverage figure that tracks all cash thateventually is spent for operating and maintenance and non-capital relatedrecurring transfers, and then compares this net figure to both annual debt

service requirements and any costs we consider fixed in nature.

We previously did not include any of these transfers out, either as a fixedcost or an operating expense, in our calculation of coverage. However, ourunderstanding now is that some of these transfers out are for operatingexpense reimbursement to other funds, which we count against net availablerevenues for debt service; some of the transfers out are to reimburse the cityfor previous tax levy dollars expended, which we view as a fixed cost absent acity ordinance that would eliminate or revise these recurring annual transfersscheduled to take place through fiscal 2028; and some of the transfers out are

indeed for capital outlay, which we do not count against net revenues.

When including transfers out of the utility, all-in DSC was 1.1x in fiscal2015 and below sufficiency in fiscals 2014 and 2013, based on ourcalculations. If the utility's future financial operations are not more in

line with results similar to those posed in fiscal 2015, looking both atall-in DSC and unrestricted liquidity, the rating could be lowered. We alsonote that we consider the 1.1x all-in coverage low for the rating category,but that the city's other significantly positive credit strengths help tooffset this weakness, and support the rating at its current 'AAA' level.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at for further information. Complete ratings information is available to subscribers of RatingsDirect at and at All ratings affected by this rating action can be found on the S&P Global Ratings' public website at Use the Ratings search box located in the left column.

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