Oklahoma City Water Utilities Trust's Series 2019 Commercial Paper Notes Assigned 'A-1+' Rating

DALLAS (S&P Global Ratings) May 17, 2019--S&P Global Ratings has assigned its 'A-1+' short-term rating to Oklahoma City Water Utilities Trust's (OCWUT) series 2019 $275 million commercial paper (CP) notes. At the same time, S&P Global Ratings affirmed its 'AAA' rating on OCWUT's water and sewer system revenue bonds outstanding. The outlook on the long-term rating is stable.
"We base the CP rating on OCWUT's general creditworthiness--reflected in its extremely strong enterprise and financial risk profiles--because the notes will ultimately convert to long-term debt by way of periodic senior-lien bonds," said S&P Global Ratings credit analyst Ted Chapman. Under OCWUT's master indenture, additional bonds are permitted if annual debt service coverage is at least 1.2x maximum annual debt service. The long-term rating and overall credit fundamentals also imply that OCWUT's ability to access the capital market as necessary to issue long-term debt is not a credit risk.
The enterprise risk profile reflects our view of the system's:
  • Location in the broad and diverse Oklahoma City metropolitan statistical area (MSA), the largest economy in the state and an employment base that anchors a seven-county region with a population of about 1.4 million people, or over one-third of the state;
  • Role as a regional wholesale water supplier, with ample water supply to meet future demand; and
  • Competitive utility rates, with planned incremental annual rate increases already preapproved to help offset the likely need for additional debt.
The financial risk profile reflects our view of the system's:
  • Extremely strong financial capacity, even after a projected large increase in total debt outstanding;
  • Strong liquidity levels that we project will remain high; and
  • Financial management practices and policies that we deem strong.
We understand that OCWUT intends to use the 2019 notes primarily as interim funding for projects in its capital improvement plan (CIP) and retire about $18 million of series 2016 notes outstanding.
OCWUT provides retail water service to about 220,000 metered accounts within the city and on behalf of the towns of War Acres and The Village. In addition, the trust provides treated water on a wholesale basis to 10 additional communities in the MSA and Tinker Air Force Base. It provides raw water to five other communities in the area and directly to several very large users, and sanitary sewer service to a similarly large service area across the region.
The stable outlook reflects our expectation that management will remain proactive regarding long-term water supply development and rate-setting practices. Despite the large CIP, we anticipate financial results to remain in line with historical levels, resulting in strong coverage and available reserves ratios. While we do not expect it, we could lower the rating should coverage and liquidity levels decline precipitously.
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