KBRA Affirms AA Rating for San Mateo-Foster City Public Financing Authority's, City of San Mateo (CA) Sewer Enterprise WIFIA Loan
5 Sep 2024 | New York
KBRA affirms the long-term rating of AA for the San Mateo-Foster City Public Financing Authority's, City of San Mateo (the City) Sewer Enterprise 2020 U.S. Environmental Protection Agency (EPA) WIFIA Loan, for the San Mateo Wastewater Treatment Plant an Upgrade and Expansion Project. The Outlook is Stable.
In 2020, the San Mateo-Foster City Public Financing Authority (the Authority), a joint exercise of powers authority established in 2016, entered into a WIFIA Loan Agreement with the EPA, on behalf of the City, for borrowings of up to $210 million to finance a portion of the San Mateo Wastewater Treatment Plant (WWTP or the Project) Upgrade and Expansion Project. Concurrently, the Authority and the City entered into a financing agreement under which the City pledges the Sewer Enterprise’s net revenues to repay the WIFIA Loan, which is on parity with the Sewer Enterprise’s outstanding debt, which totaled $619.1 million as of June 30, 2023.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- Sewer Enterprise's strong cash flow and liquidity for the past five years.
- Implementation of timely and considerable annual sewer rate increases which support the Sewer Enterprise's large capital program and maintain solid financial performance.
- Affluent service area with a primarily residential customer base.
Credit Challenges
- Completion of the WWTP is behind schedule, but the Project's total cost to date remains within the original cost estimate. Further material cost overruns that result in a significant financial burden pose a credit concern.
- While the City is taking advantage of low-cost state and federal loans for its large capital requirements, leverage is high at 88.5% at FY 2023, but moderating prospectively as no new debt is projected for the Sewer Enterprise through FY 2028.
Rating Sensitivities
For Upgrade
- Completion of the WWTP project with limited further delays and stronger than projected DSC.
- Sustained improvement in the Sewer Enterprise’s leverage.
For Downgrade
- Material WWTP cost overruns that negatively affect leverage and/or liquidity.
- Inadequate sewer rate adjustments that result in a sustained decline in revenues and debt service coverage.
To access rating and relevant documents, click here.