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Moody's Investors Service Inc.

Moody's Affirms Aa2 Ratings on San Francisco's Wastewater Revenue Bonds and WIFIA Loans

Strategic Insights

— 2 min read

The San Francisco Public Utilities Commission's (SFPUC) wastewater revenue bonds and Water Infrastructure Finance and Innovation Act (WIFIA) loans have been affirmed with Aa2 ratings by Moody's Investors Service. The commission's wastewater enterprise serves a large and wealthy service area, with a diverse customer base and a median family income of 170.9% of the US median family income. The Aa2 rating reflects the system's current financial strength, which improved in fiscal 2024 due to a 9% annual rate increase. However, debt service coverage will decline and leverage is likely to increase, requiring careful management to maintain the system's credit profile.

Key Takeaways:

  • The SFPUC's wastewater revenue bonds and WIFIA loans have been affirmed with Aa2 ratings by Moody's Investors Service.
  • The commission's exceptionally large and wealthy service area, with a diverse customer base, supports the Aa2 rating.
  • The median family income of San Francisco residents is 170.9% of the US median family income, further strengthening the Aa2 rating.
  • Planned additional rate increases should support financial operations consistent with Aa2-rated peers, although debt service coverage will decline and leverage is likely to increase.
  • As of fiscal 2024, debt service coverage using current-year net revenue was 1.1 times and reported days cash totaled 361 days, though both metrics are materially understated due to a non-cash expense included in operations & maintenance (O&M).
  • When adjusted to account for this non-cash expense, cash on hand equaled 509 days and coverage exceeded 2.2 times, which are consistent with respective historical levels.
  • The Aa3 rating for the bank bond and bank note ratings related to the wastewater system's commercial paper program and revolving loans reflects a one-notch distinction from the Aa2 revenue bond rating.
  • The stable outlook reflects Moody's expectation that the system will continue to implement rate increases and manage costs to offset fluctuations in wastewater flow.

Statistics:

  • The SFPUC has approximately $3.9 billion in outstanding wastewater revenue obligations as of fiscal 2024.
  • The median family income of San Francisco residents is 170.9% of the US median family income.
  • As of fiscal 2024, debt service coverage using current-year net revenue was 1.1 times.
  • Reported days cash totaled 361 days as of fiscal 2024, though this metric is materially understated due to a non-cash expense included in O&M.
  • When adjusted to account for this non-cash expense, cash on hand equaled 509 days as of fiscal 2024.
  • The SFPUC's leverage equaled 9.9 times fiscal 2024 operating revenue.

Sources:

  • Moody's Investors Service - "Moody's Ratings" (Source: Moody's Ratings, March 2024)
  • Moody's Investors Service - "US Municipal Utility Revenue Debt" (Source: Moody's Ratings Methodologies, March 2024, available at https://ratings.moodys.com/rmc-documents/416489)

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