Fitch Rates NYC Muni Water Fin Auth FY 2016 & 2003 Various Subseries Bank Bonds; Outlook Stable
--$100,000,000 second general resolution (SGR) revenue bonds, adjustable rate fiscal 2016 subseries AA-1 bonds;
--$100,000,000 SGR revenue bonds, adjustable rate fiscal 2016 subseries AA-2 bonds;
--$50,000,000 SGR revenue bonds, adjustable rate fiscal 2016 subseries AA-3 bonds;
--$101,655,000 adjustable rate fiscal 2003 subseries F-2 bonds.
The Rating Outlook is Stable.
The bank bond rating for the fiscal 2016 bonds is being assigned in connection with the issuance of Standby Bond Purchase Agreements (SBPAs) provided by Bank of America, National Association ('A/F1', Stable Outlook) for subseries AA-1, PNC Bank, N.A. ('A+/F1', Stable Outlook) for subseries AA-2 and Royal Bank of Canada, ('AA/F1+', Stable Outlook) for subseries AA-3. The SBPAs are expected to become effective Oct. 28, 2015.
The bank bond rating for the fiscal 2003 subseries F-2 bonds is being assigned in connection with the substitution of the SBPA currently provided by Bayerische Landesbank (guaranteed obligations; rated 'AAA/F1+', Stable Outlook) with a substitute irrevocable direct-pay letter of credit (LOC) to be provided by Citibank, N.A. (rated 'A+/F1', Stable Outlook) for the bonds. The SBPA became effective Oct. 26, 2015.
Based on a review of the terms governing bank bonds specified in each of the SBPAs, 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 SGR bonds are special obligations of NYW, payable solely from and secured by a subordinate lien on gross revenues of NYW's combined water and sewer utility system (the system). First general resolution bonds are secured by a first lien on gross revenues of NYW.
KEY RATING DRIVERS
SOUND LEGAL PROTECTIONS: NYW's primary credit strength is its legal structure, including its status as a bankruptcy-remote issuer, providing substantial protection to bondholders from potential operating risks associated with the combined utility system (the system) and New York City (the city).
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.
INDEPENDENT RATE-SETTING AUTHORITY: Strong financial management and a proven ability and willingness to independently raise rates are reflected in consistently solid financial results, despite the continued volatility in consumption.
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.
HIGHLY LEVERAGED SYSTEM: Debt levels are high as a result of having to comply historically 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.
MAINTENANCE OF SUFFICIENT RATES: New York City Municipal Water Finance Authority's failure 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.
RISING DEBT LEVELS: The continued escalation in the system's debt levels remains an increasing concern that could ultimately pressure the rating. Increases in leverage beyond what is currently forecast would likely place added pressure on the authority's current rating.
For more information on Fitch's long-term rating on NYW, see Fitch's press release 'Fitch Rates New York City Muni Water Finance Authority's $435MM Revs 'AA+', dated May 15, 2015, available on Fitch's web site at 'www.fitchratings.com'.