Rating Action: Moody's assigns Aa3 to Jersey City MUA, NJ's water revenue bonds; outlook stable
Global Credit Research - 21 Aug 2020
New York, August 21, 2020 -- Moody's Investors Service has assigned a Aa3 rating to the Jersey City Municipal Utilities Authority (MUA), NJ's $46.7 million Water Revenue Bonds, Series 2020. Moody's maintains the Aa3 on the authority's outstanding revenue bonds. The outlook is stable.
The Aa3 rating reflects a sizeable and growing, prior to the pandemic, customer base, a stable financial position, and the support of the underlying municipality, the City of Jersey City (Aa3 stable).
While audited financial results are not yet available for fiscal 2019 (ended December 31, 2019) preliminary results are favorable indicating coverage remained healthy.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for the MUA; although Jersey City has been at the center of the pandemic, the MUA has not been materially impacted. While there has been a shift in the pattern of usage between various residential and commercial properties, the overall change has been modest. The MUA is, of course, an essential enterprise and, to date, collections have not been materially impacted. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of the Jersey City Municipal Utilities Authority changes, we will update the rating and/or outlook at that time.
The stable outlook reflects the expectation that the system will continue to proactively review and adjust rates to maintain healthy financial metrics. The outlook also reflects the system's growing, prior to the pandemic, customer base and service area, as well as the stable outlook on Jersey City.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
- Significant improvement in liquidity and debt service coverage
- Reduced debt burden
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Inability to implement rate increases sufficient to maintain sound financial metrics
- Trend of declining debt service coverage
- Reduced financial flexibility and liquidity
Debt service on the bonds is secured by the net revenues of the system. Technically, each part of the system, water and sewer, calculates debt service separately, however, each is cross pledged to the other.
The legal provisions under the current resolution are expected to ensure adequate protection for bondholders. While the resolution only calls for a sum sufficient rate covenant, it does have a debt service reserve fund at MADS. The reserve is expected to be funded with a surety from Assured Guaranty.
Very favorably for bondholders, the city has a service agreement of long-standing with the MUA. This agreement requires to the city to make good any deficiencies in revenues including amounts sufficient to pay debt service.
The outstanding debt portfolio is technically split into senior and subordinate water and sewer bonds, with the senior bonds being those issued to pay for the franchise fee when the authority was created. However, given the strong support provide by the city under the service contract, which applies to all bonds, the actual credit distinction is minimal.
USE OF PROCEEDS
Proceeds of the bonds will be used to finance various capital projects.
The Jersey City Municipal Utilities Authority provides water distribution and treatment and sewerage collection to nearly 262,000 residents in Jersey City. The water division also supplies other municipalities and companies.
The principal methodology used in this rating was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Douglas Goldmacher Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lauren Von Bargen Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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