Fitch Rates NYC Muni Water Fin Auth's FY 2007 & 2017 Various Subseries Bank Bonds; Outlook Stable
--$160,500,000 water and sewer system second general resolution (SGR) revenue bonds, adjustable rate fiscal 2007 subseries CC-1 bonds;
--$50,000,000 water and sewer system SGR revenue bonds, adjustable rate fiscal 2007 subseries CC-2 bonds;
--$100,000,000 water and sewer system SGR revenue bonds, adjustable rate fiscal 2017 subseries BB-1A bonds;
--$100,000,000 water and sewer system SGR revenue bonds, adjustable rate fiscal 2017 subseries BB-1B bonds;
--$50,000,000 water and sewer system SGR revenue bonds, adjustable rate fiscal 2017 subseries BB-2 bonds;
--$39,500,000 water and sewer system SGR revenue bonds, adjustable rate fiscal 2017 subseries BB-3 bonds.
The Rating Outlook is Stable.
The bank bond rating for the fiscal 2007 subseries CC-1 and CC-2 bonds has been assigned in connection with a forthcoming issuance of a standby letter of credit and reimbursement agreement for the Subseries CC-1 bonds with Sumito Mitsui Banking Corporation (rated 'A'/F1 with a Negative Outlook), acting through its New York branch, and a standby bond purchase agreement with Bank of Montreal (rated 'AA-'/F1+ with a Stable Outlook), acting through its Chicago branch that will replace an expiring liquidity facility. Both agreements will become effective Oct. 6, 2016.
The bank bond rating for the BB-1A and BB1-B bonds is assigned in connection with liquidity support provided by State Street Bank and Trust Company (rated 'AA/F1+', Stable Outlook) in the form of two separate Standby Bond Purchase Agreements (SBPA) that extend to Oct. 5, 2021. The bank bond rating on the fiscal 2017 subseries BB-2 bonds is assigned in connection with liquidity support provided by Bank of Montreal (rated 'AA-/F1+', Stable Outlook) acting through its Chicago branch, in the form of a SBPA, which has a stated expiration date of Oct. 5, 2020.
The bank bond rating on the fiscal 2017 subseries BB-3 bonds is assigned in conjunction with a Standby Letter of Credit and Reimbursement Agreement with Sumitomo Mitsui Banking Corporation (rated 'A/F1', Negative Outlook), acting through its New York branch with a stated expiration date of Oct. 5, 2021.
Based on a review of the terms governing bank bonds specified in each of the liquidity support agreements, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on NYW's long-term credit rating.
The bonds are special obligations of NYW issued under the SGR and payable solely from and secured by a subordinate lien on gross revenues of NYW. The SGR bonds currently being issued will not have a debt service reserve fund (DSRF).
KEY RATING DRIVERS
REGIONAL PROVIDER OF AN ESSENTIAL SERVICE: The system provides an essential service to an exceptionally large, diverse and economically important service area. The system benefits from an abundant, high-quality water supply exempt from expensive filtration requirements and transmission costs.
DEMONSTRATED RATE-RAISING WILLINGNESS: Strong financial management and a proven ability and willingness to raise rates are reflected in consistently solid financial results, despite continued volatility in consumption. The New York City Water Board's (the water board) independent rate-setting authority remains an important consideration.
HIGHLY LEVERAGED SYSTEM: Debt levels are high as a result of historically having to comply with environmental mandates and maintain a large urban system and its aging assets. Declining but still sizeable debt issuances programmed into the current capital plan will keep debt levels elevated for the long term.
WELL-MANAGED CAPITAL PROGRAM: Sophisticated capital planning efforts have helped achieve compliance with large and costly mandated regulatory projects and ensured the system's total assets are adequately maintained.
SOUND LEGAL PROTECTIONS: NYW's legal structure enhances protection to bondholders from potential risks associated with the system and New York City (the city).
BELOW-AVERAGE COLLECTIONS: Below-average current collection rates persist, although payment incentives and strong enforcement mechanisms have yielded positive results in recent years.
MAINTENANCE OF SUFFICIENT RATES: New York City Municipal Water Finance Authority's inability to establish rates sufficient to ensure the continuation of strong financial margins and currently robust debt service coverage (DSC) levels on senior and subordinate lien obligations would be viewed negatively.