S &P Global Ratings and Fitch Ratings Inc. have reaffirmed Suffolk County Water Authority’s AAA bond ratings for 2020, which helped SCWA secure a very low interest rate on an $87 million bond offering to fund vital SCWA capital projects.
“As gratifying as it is to have our hard work recognized—especially in this time of crisis—it’s important to keep in mind this is really a huge win for our ratepayers,” said SCWA Chairman Patrick Halpin. "The decisions made by Fitch and S&P give us the best bond ratings of any utility in the country, and that will help us keep our water rates low.”
SCWA uses bonds to fund key infrastructure projects such as new pipelines, wells, and critical water treatment technologies such as Advanced Oxidation Process systems that remove the contaminant 1,4-dioxane and maintain the quality and safety of the county’s water supply.
"This re-affirmation of our AAA bond ratings is a testament to our proactive, long-term approach to financial planning," said SCWA Chief Executive Officer Jeffrey W. Szabo. "From our ten-year strategic business plan, to our strong financial management team, we feel that we’re leaders in the industry, and these assessments prove that.”
On Tuesday, multiple financial institutions submitted bids in an effort to win the ability to underwrite the bond offering. The $87 million offering was described by Refinitiv as “the most interesting deal of the week,” with Bank of America winning the bid at a total interest cost of 3.077%.
S&P referenced the Authority’s historically strong “all-in coverage” of debt service, strong liquidity position and strong financial management assessment due to SCWA’s comprehensive budget process and strict monitoring.
“Due to SCWA's limited exposure to federal revenues, we believe the 'AAA' rating on the authority's combined enterprise system revenue bonds, which exceeds the U.S. sovereign credit rating, is warranted per our criteria,” reads the official report from S&P. “The rating reflects our opinion of the authority's extremely strong enterprise and financial risk profiles.”
Additionally, S&P pointed to SCWA’s strong conservative embedded management policies leading to very strong financial metrics. Fitch cited the Authority’s very low water rates compared to the service area's median household income levels, which they added provide considerable flexibility.
In its report, Fitch made specific reference to the COVID-19 pandemic but had no concerns about negative financial impacts for SCWA revenues, as the virus does not affect water service or water quality.
“Unlike the county, which derives significant revenues from sales taxes, SCWA is a legally separate authority that derives nearly 95% of its revenue stream from customers served on a retail basis,” the official Fitch report reads. “The authority does not anticipate its revenues will significantly change in response to the coronavirus outbreak.”
The agency went on to commend SCWA’s consistently solid debt service coverage ratios and robust cash reserves, saying that modest annual rate hikes have sufficiently offset steadily rising debt service obligations.
"I know how hard my staff works every day to make sure we are doing the right things, so I’m incredibly proud to receive this affirmation from both Fitch and S&P,” said SCWA Chief Financial Officer Elizabeth Vassallo. “We are committed to maintaining our strong fiscal discipline."
The Suffolk County Water Authority is an independent public-benefit corporation operating under the authority of the Public Authorities Law of the State of New York. Serving approximately 1.2 million Suffolk County residents, the Authority operates without taxing power on a not-for-profit basis.