Press Release|Public Finance
KBRA Affirms AA Rating for Metropolitan Government of Nashville and Davidson County, TN Water and Sewer System WIFIA Loan
14 Jun 2024 | New York
KBRA affirms the long-term rating of AA with a Stable Outlook for the The Metropolitan Government of Nashville and Davidson County, TN Water and Sewer System’s WIFIA Loan for Process Advancements at Omohundro and K.R. Harrington Water Treatment Plants Project.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- Providing an essential service with rate setting autonomy. The water and sewer systems returned to annual rate increases since 2020 demonstrating willingness to increase rates to meet operating and capital requirements.
- Fiscally conservative debt and financial plan (with 50% internal funding of capex) which supports sound operating cash flow, liquidity and debt service coverage.
- Clean Water Nashville capital program ($2.7 billion) mandated by consent decree is large but affordable in the context of long-dated compliance deadline (2035) and the water and sewer systems' competitive rates.
Credit Challenges
- Potential for further escalation in consent decree program costs as the scope of the program is updated by year-end 2025.
- System leverage may increase over time given the size of consent decree projects.
Rating Sensitivities
For Upgrade
- Substantial fulfillment of the consent decree requirements accompanied by the maintenance of moderate or reduced leverage and affordable rates.
For Downgrade
- Material escalation of the consent decree and other capital program costs to a level placing significant pressure on rate affordability and/or leverage.
- Inability to adjust rates as needed and on a timely basis to manage System operating and capital needs while maintaining moderate leverage.
- Substantial erosion in operating performance resulting in large reduction in debt service coverage and liquidity.
To access rating and relevant documents, click here.