Moody's upgrades Tacoma, WA's solid waste revenue bonds to A1 from A2
Rating action affects $21M new issue and $58M outstanding parity bonds
Global Credit Research - New York - January 26, 2015
Issue: Solid Waste Revenue Bonds, 2015; Rating: A1; Sale Amount: $20,760,000; Expected Sale Date: 02/11/2015; Rating Description: Revenue: Government Enterprise
Opinion
Moody's Investors Service has assigned A1 to Tacoma, Washington's $20.8 million Solid Waste Revenue Bonds, 2015. Concurrently, Moody's has upgraded to A1 from A2 the ratings on $58.1 of outstanding parity bonds.
SUMMARY RATING RATIONALE
The upgrade is based upon continued healthy liquidity and debt service coverage in combination with the system's simplified and stable operational profile, which is reflected in a transition away from capital intensive landfill activities to contract disposal. Also considered are the system's favorable credit factors which include: a stable waste stream supported by a court-tested flow control ordinance; an economically diverse service area; a healthy balance sheet; and standard bondholder protections.
The system's operating margin and net margin (includes coverage of debt service and earnings tax) have narrowed recently and will likely remain narrow relative to prior levels as an accelerated fill of the landfill has been completed and pay-go capital spending requirements have declined and are projected to remain low going forward. Despite this narrowing, we expect bond ordinance debt service coverage ratios will remain sound and net margins will improve as cash balances reach their policy-prescribed minimum levels in 2017 and turn upwards from there.
OUTLOOK
Outlooks are generally not applicable for local government credits of this size.
WHAT COULD MAKE THE RATING GO UP
• Sustained increase in bond ordinance debt service coverage and expanded post-PILOT debt service coverage
• Material reduction in debt and post-closure liability while available cash remains healthy
WHAT COULD MAKE THE RATING GO DOWN
• Deterioration of bond ordinance debt service coverage and post-PILOT debt service coverage
• Weakening of general government credit quality or service area economy
OBLIGOR PROFILE
The system is an enterprise of the city of Tacoma (Aa3 stable) and provides mandatory solid waste collection and disposal to residents and commercial and industrial entities within the city.
LEGAL SECURITY
The bonds are secured by a senior lien on the net revenues of Tacoma's Solid Waste Management system (the "system"). Legal provisions are standard. The rate covenant is 1.25 times annual debt service (inclusive of rate stabilization fund transfers in or out), the additional bonds test is 1.25 times maximum annual debt service (allows net revenues to be calculated pro forma for rate adjustments), and the debt service reserve fund is a common reserve, funded in cash at $8.8 million. The flow of funds is standard and the bonds cannot be accelerated. Notably, the bond ordinance does not include post-closure costs in O&M, even though these are cash costs expensed through O&M.
USE OF PROCEEDS
Proceeds will provide new money to replace collection vehicles with diesel and/or compressed natural gas hybrids and hydraulic transmissions where feasible, and to make a deposit to the debt service reserve fund. Concurrent with the sale, the system may additionally advance refund all or portions of the 2006 solid waste revenue bonds, not for savings but to smooth the debt service profile.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was US Municipal Utility Revenue Debt published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Moses Kopmar
Analyst
Public Finance Group
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco, CA 94111
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John I Incorvaia
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Originally found at Moody's.com.