Rating Action: Moody's assigns Aa2 to Honolulu Sewer Enterprise's senior lien refunding bonds, Series 2020A
Global Credit Research - 08 Dec 2020
New York, December 08, 2020 -- Moody's Investors Service has assigned an Aa2 rating to the City and County of Honolulu, Hawaii's $151.7 million Wastewater System Revenue Bonds, Senior Series 2020A (Taxable Refunding), First Bond Resolution. Moody's maintains Aa2 and Aa3 ratings on the sewer enterprise's senior lien and junior lien revenue bonds. The rating outlook is stable.
RATINGS RATIONALE
The Aa2 senior lien rating reflects the wastewater system's large and stable service area that covers most of the City and County of Honolulu (Aa1 negative). Despite the extremely detrimental effects of the coronavirus pandemic on tourism, a key sector of the state's economy, delinquency rates are low, debt service coverage is healthy and liquidity remains extremely strong. The rating also takes into consideration the system's forward-looking leadership that has strategically managed its rate and capital plans over a long period of time and has adopted solid practices and policies, though they have notably not increased rates since 2017 and do not expect to raise rates until 2022. Finally, the rating incorporates the extensive capital needs of the system to address environmental risks that will result in substantial borrowing in the coming years.
RATING OUTLOOK
The outlook for the Honolulu Sewer Enterprise is stable. The enterprise continues to complete projects on time and on budget to comply with a 2010 Consent Decree while maintaining very healthy liquidity and healthy debt service coverage. The stable outlook reflects our view that the system's strong management team will continue to maintain satisfactory debt service coverage and liquidity levels going forward, despite significant future borrowing plans.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
- Sustained improvement in debt service coverage
- Material reduction in financial leverage
- Substantial completion of all capital projects related to the consent decree
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Material weakening of debt service coverage
- Significant growth in financial leverage
- Substantial additional capital needs beyond already identified projects
LEGAL SECURITY
The senior lien bonds are secured by a first lien on the net revenues of the city's sewer enterprise.
USE OF PROCEEDS
Bond proceeds will be used to refund for savings certain maturities of the Honolulu's outstanding senior lien wastewater revenue bonds.
PROFILE
With approximately 148,000 accounts, the wastewater system serves approximately 80% of the population of the City and County of Honolulu. The system has nine wastewater treatment plants, 71 pumping stations, 2,100 miles of pipe, and four preliminary treatment facilities. The system handles an average daily flow of 107 million gallons per day.
METHODOLOGY
The principal methodology used in this rating was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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.
William Oh Lead Analyst Regional PFG West Moody's Investors Service, Inc. One Front Street Suite 1900 San Francisco 94111 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Tatiana Killen Additional Contact PF General Administration JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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