Report|Public Finance|11 Mar 2021

Public Finance: U.S. Municipal Retail Utility Revenue Bond Rating Methodology

Preamble
Introduction
Background
Retail Water and Wastewater Utilities
State Revolving Funds
Retail Public Power Utilities
Bankruptcy Assessment
Analytic Focus
Rating Determinants
Rating Determinant 1: Management, Governance, Regulatory Framework
Management
Rate Setting Authority and Process
Capital Plan Management
Financial Management Policies and Procedures
Budgeting Policies and Practices
Pension and OPEB Management
Regulatory Compliance
Renewable Portfolio Standards
Resiliency
KBRA Management, Governance and Regulatory Framework Metrics and Ratios
Rating Determinant 2: Legal Mechanics and Security Provisions
Revenue Pledge
Rate Covenant
Additional Bonds Test
Debt Service Reserve Fund and Other Reserve Requirements
Flow of Funds
Additional Security Sources
KBRA Legal Mechanics and Security Provisions Metrics and Ratios
Rating Determinant 3: Service Area and Demand
Customer Base
Demographics
Rate Structure
Collection and Enforcement Trends
Rate Affordability and Competitiveness
KBRA Service Area Economy and Demand Metrics and Ratios
Rating Determinant 4: Operations and Capital
System Characteristics
System Condition
Capacity Constraints
Water Supply & Water Allocation Rights
Water and Wastewater Treatment
Fuel Supply, Diversity and Reliability
Transmission Access
Cost of Power
Capital Expenditures
Public Power Operating Risks
KBRA Operations and Capital Metrics and Ratios
Rating Determinant 5: Financial Profile and Debt
Balance Sheet
Trends of Accounts Receivable
Liquidity
Income Statement
Revenue / Expense Management
Debt Service Coverage
Fixed Charge Coverage
Stress Testing
Debt Structure and Leverage
Variable Rate Debt and Other Products
Leverage Ratio
KBRA Key Financial Profile and Debt Metrics and Ratios
Surveillance

Preamble

This replacement to the U.S. Municipal Water and Sewer Revenue Bond Rating Methodology is intended to supersede the version originally published on June 17, 2016. Upon implementation of this U.S. Municipal Retail Utility Revenue Bond methodology, KBRA will retire the U.S. Municipal Water and Sewer Revenue Bond Rating Methodology. The replacement methodology creates a single methodology to address a wider variety of retail utilities, including specifically municipal electric utilities. Other modifications include:

increased emphasis on the strength of management as a critical rating factor
revision of the bankruptcy risk assessment
updates to certain financial and operating metric benchmarks
analytic revisions to the section of the methodology pertaining to the evaluation of the impact of a local government’s pension obligations on the utility’s operations, and
certain clarifications and edits to improve readability.

Analytical…

KBRA is a global full-service rating agency with a mission to set a standard of excellence and integrity. Established in 2010, KBRA remains dedicated to the restoration of trust in credit ratings by creating new standards for assessing risk and by offering timely and transparent ratings. KBRA provides market participants with an alternative solution by delivering in-depth research across various sectors within the United States and European markets. We strive to provide the investment community with the products and tools needed to make informed investment decisions.