Fitch Affirms Austin's (TX) Bank Note at 'AA-'; Outlook Stable
--$400,000,000 combined utility systems CP notes, series A.
The Rating Outlook is Stable.
The bank note rating is assigned to the combined utility systems CP notes, series A, but will only become applicable if the notes cannot be remarketed and are purchased by the bank providing the liquidity facility.
The bank note rating is supported by a current irrevocable direct-pay letter of credit (LOC) provided by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU; 'A/F1'/Negative Outlook).
The combined utility systems bank note is ultimately secured by a joint and several pledge of net revenues of the combined utility systems, consisting of the Austin Water Utility (AWU) and Austin Energy (AE). The bank note is payable after provision for prior first and subordinate lien obligations of the combined utility systems ('AA' and 'AA-', both with a Stable Outlook) and after provision for the separately secured AWU water and wastewater revenue bonds ('AA-'/Stable Outlook) and AE electric revenue bonds ('AA-'/Stable Outlook).
The issuance of additional bonds secured by a joint and several pledge of net revenues of AWU and AE is no longer permitted by the master bond ordinance, making the prior first and prior subordinate liens effectively closed. However, issuance of CP obligations secured by the joint and several pledge is permitted.
KEY RATING DRIVERS
BANK BOND RATING: The bank note rating is based on the credit quality of AWU and AE and reflective of the joint and several pledge of net revenues of the two utilities.
STRONG SERVICE AREA: Both AWU and AE provide utility services on a retail basis to a sizeable service territory that includes the city (general obligation bonds rated 'AAA', Stable Outlook) and neighboring areas beyond the city limits. Austin has a broad and diverse economy as reflected by exceptionally low unemployment, above-average wealth levels and a highly diversified customer base that continues to grow.
STABLE INTEGRATED ELECTRIC UTILITY: AE's revenue bond rating reflects its stable financial metrics, autonomous rate-setting authority and competitive rates, currently moderate debt profile and the utility's diverse power supply portfolio.
IMPROVED FINANCIAL PERFORMANCE AT AWU: The Stable Outlook on AWU's outstanding revenue bonds reflects modest but notable improvement in financial performance. Fitch expects improvement to continue at least through the current forecast period ending in fiscal 2021. Other rating factors include an economically strong service area, high debt levels, and water supply and treatment capacity sufficient to meet its long-term needs.
CHANGE IN OBLIGOR RATINGS: Any change in the rating or Outlook of either obligor (AWU and AE) that exhibits the stronger credit quality would likely result in a corresponding rating action on the bank note.