Pueblo Board of Water Works, CO's Series 2019 Water Revenue Refunding Bonds Assigned 'AA' Rating

CENTENNIAL (S&P Global Ratings) April 19, 2019--S&P Global Ratings assigned its 'AA' long-term rating to Pueblo Board of Water Works, Colo.'s series 2019 water revenue refunding bonds. At the same time, we affirmed our 'AA' long-term rating on all outstanding system obligations. The outlook is stable.
"The rating reflects our view of the water system's strong enterprise risk profile and extremely strong financial risk profile," said S&P Global Ratings credit analyst Alexandra Rozgonyi.
The enterprise risk profile reflects our view of the water system's:
  • Service area in Pueblo County, about 110 miles south of Denver and 45 miles south of Colorado Springs, and income metrics we consider adequate, as measured by median household effective buying income at 70.6% of the national level;
  • Affordable water system rates, although, given the adequate income metrics and the high county poverty rate, we expect the market position score to be pressured if the service area economy deteriorates in correlation with rising rates;
  • Very low industry risk as a monopolistic service provider of an essential public utility; and
  • Good operational management assessment, represented by significant water supply to meet demand for the next 50 years and sufficient water treatment capacity to meet demand.
The financial risk profile reflects our view of the water system's:
  • Extremely strong all-in coverage metrics at above 2.0x during the past three fiscal years, which expect will remain extremely strong given planned rate increases and a lack of future debt plans;
  • Very strong liquidity position, represented by about $27 million, or 380 days of operating expenses, for fiscal 2018;
  • Low debt-to-capitalization ratio at 14.7%, which we expect to stay low given the lack of future debt plans and manageable, roughly $38.9 million capital plan during the next five years; and
  • Strong financial management assessment, represented by frequently updated long-term capital and financial plans in addition to formalized policies and practices.
The stable outlook reflects our expectation that the board will sustain its extremely strong liquidity position while supporting its pay-as-you-go capital improvement program. The continuance of the regular rate increases, coupled with reasonable forecasting assumptions, will be integral to the board's ability to maintain its current healthy financial profile.
Proceeds from the sale of the bonds will be used to refund the board's taxable water revenue bonds (Build America Bond-Direct Payment to Issuer), series 2009, currently outstanding in the principal amount of $24 million. After the issuance, the board will have about $33 million of outstanding debt obligations.
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