S&P: East Cocalico Township Authority, PA Water Revenue Bonds Upgraded To 'AA-' From 'A+' On Strong Financials
The upgrade reflects what we view as the system's very strong economic and financial metrics, as well as the application of our revised criteria, " USPF Criteria: Rating Methodology And Assumptions For U. S. Municipal Waterworks And Sanitary Sewer Utility Revenue Bonds," published Jan. 19, 2016, on RatingsDirect.
The enterprise risk profile reflects our view of the system's:Service area participation in the broad and diverse Lancaster metropolitan statistical area (MSA) economy;Very low industry risk as a monopolistic service provider of an essential public utility;Affordable service rates in the context of the service area's income levels; andGood operational management practices and policies. The financial risk profile reflects our view of the system's:Extremely strong historical all-in debt service coverage (DSC) metrics that we believe the utility will continue to produce in the near term; Extremely strong liquidity position that we believe is sustainable in the near term, despite using cash to fund capital needs;Low debt-to-capitalization ratio of about 26% with no additional debt plans in the future; and Good financial management practices and policies. The purpose of the bonds is to advance-refund series 2013 bonds, fund the debt service reserve fund, and pay the costs of issuance. The bonds are secured by net revenues of the system. We view the legal provisions as credit neutral.
The stable outlook reflects our expectation that management will continue to maintain extremely strong DSC (S&P Global Ratings calculated) and very strong liquidity even as it spends cash to fund system capital needs. Over the next two years, we do not expect to change the rating based on these factors.
If system operations and potential rate increases lead to significantly stronger liquidity levels and extremely strong DSC is maintained, we could raise the rating.
If DSC falls to and remains at lower levels or if unrestricted cash is significantly drawn down due to funding capital plans, we could lower the rating.