Buffalo Municipal Water Finance Authority, NY Revenue Bond Rating Raised To 'A+' From 'A' On Very Strong Finances

DALLAS (S&P Global Ratings) April 15, 2019--S&P Global Ratings raised its rating on Buffalo Municipal Water Finance Authority, N.Y.'s water system revenue bonds outstanding to 'A+' from 'A'. At the same time, S&P Global Ratings assigned its 'A+' long-term rating to the authority's series 2019A water system revenue bonds and series 2019B water system revenue refunding bonds. The outlook is stable.
"The rating reflects our view that the authority will be able to maintain its very strong financial profile, even as it embarks on a more aggressive renewal and replacement program during which it will essentially double its debt outstanding," said S&P Global Ratings credit analyst Theodore Chapman.
The enterprise risk profile reflects our view of the system's:
  • Location in Buffalo, which is the economic engine for western New York, and the second-largest city overall in the state, providing customers with a broad and diverse employment base;
  • Regional economy that is on an upswing after years of stagnation; and
  • An operational management assessment we deem as good.
The financial risk profile reflects our view of the system's:
  • Adequate all-in debt service coverage (DSC);
  • Extremely strong liquidity; and
  • Strong financial management practices and policies.
The stable outlook reflects our expectation that management will continue to preserve adequate DSC beyond levels the existing rate covenant requires, maintain a good liquidity position, and address its capital improvement plan to the extent that there is no evidence of deferred maintenance.
In our view, the biggest risk to the rating would be if all-in DSC, as we calculate it, were to suffer a prolonged weakness, as we view that to be the most sensitive factor within the financial profile. We could also lower the rating if there appears to be a pattern of deferred maintenance, as indicated by the authority addressing only capital needs that the system can afford, not those which it truly needs to do.
Given the headwinds of the economic fundamentals, specifically the income indicators as a limiting factor, combined with the potential to more than double the debt outstanding over the medium term, we are unlikely to raise the rating.