DALLAS - The water utility serving Albuquerque and Bernalillo County, New Mexico expects interest-rate savings of 8.52% when it issues $195 million of refunding bonds this month, officials said.
The bonds will be priced through negotiation in two series the week of Aug. 18. The $98.4 million of senior-lien bonds carry ratings of Aa2 from Moody's Investors Service and AA from Fitch Ratings. Moody's rates the $96.3 million of subordinate-lien bonds a notch lower at Aa3, while Fitch rates those AA, as well.
"No distinction in the ratings between the senior and junior lien is made at this time because there is no material difference in the financial metrics when all of the system debt is considered," Fitch analyst Gabriela Gutierrez said. "Also, legal covenants for both liens are relatively strong in terms of rate and additional bonds test."
The Series 2014A bonds will refund the authority's Series 2005 bonds and 2005 New Mexico Finance Authority loan at the senior-lien level. The 2014B bonds will refund Series 2006A bonds and 2001 New Mexico Environmental Department loan at the new subordinate-lien level.
The authority has about $421 million of outstanding debt.
"Debt service coverage has been volatile in recent years but is expected to improve with the recent enactment of utility rate hikes," Gutierrez said. "While the authority's financial metrics are still below-average for the rating category, progress in these metrics is expected over the medium term due to its declining capital needs and rapid debt amortization."
A slowdown in housing starts that brought fewer connection fees, and the authority's problems with accounting weakened its financial profile in years 2009 through 2011, according to Fitch. Senior lien annual debt service coverage dropped below the authority's rate covenant of 1.33x in fiscal 2009 and remained below the rate covenant through fiscal 2011.
"Fitch views the delay in rate increases to offset operating pressures during this period as a credit weakness, while noting that authority management acted promptly to bolster finances once audited information became available," Gutierrez said.
Until 2013, the authority was part of the city of Albuquerque and was included in its certified annual financial reports. The CAFRs have been issued later than anticipated since 2006 because of problems with the city's accounting software. However, the authority developed its own accounting software, with its first independent CAFR this year, Gutierrez said.
The authority provides water and wastewater service to about 674,000 residents through approximately 195,000 water and sewer connections within the city and county. Water supplies traditionally have been obtained through extraction of resources from the Rio Grande basin aquifer beneath the city.
With new investments to deal with drought, debt per customer rose from $710 in 2004 to $1,700 in 2013.
"Nevertheless, even with three planned debt issuances of $71 million in spring of 2015 and two $56 million bond sales in fiscals 2017 and 2019, debt levels are projected to decline with debt per customer estimated at $1,423 in five years," Gutierrez said.
