S&P: Upper Shenango Valley Water Pollution Control Authority, PA Series 2016A Sewer Revenue Bonds Rated 'A-'; Outlook Stable
"We base the rating on what we consider the combination of a strong enterprise risk profile and a strong financial risk profile," said S&P Global Ratings credit analyst Scott Winrow.
The rating also reflects what we view as the system's adequate economic and strong financial metrics, as well as the application of our revised 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 Youngstown-Warren-Boardman metropolitan statistical area 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:Insufficient-to-adequate historical all-in debt service coverage metrics that we believe the utility will continue to produce in the near term; Strong liquidity position that we believe is sustainable in the near term, despite using cash to fund capital needs;Moderately high debt-to-capitalization ratio of about 62% with no additional debt plans in the future; and Good financial management practices and policies. The purpose of the bonds is to advance refund all of the authority's proportionate share of the City of Sharon Sanitary Authority's series 2007 sewer revenue bonds 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 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 coverage levels and cash levels are 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.
The USVWPCA owns and operates a sanitary sewer collection and conveyance system, which serves the Borough of Sharpsville, the Patagonia area of the City of Hermitage, and a portion of South Pymatuning Township, in Mercer County, Pa. It sends its flows for treatment to the Sharon Sanitary Authority wastewater treatment plant.