KBRA Assigns AA- Rating, Stable Outlook to the City of Atlanta Water and Wastewater Subordinate Lien Revenue Refunding Bonds, Series 2026 (Sustainability Bonds)
8 Apr 2026 | New York
KBRA assigns a long-term rating of AA- to the City of Atlanta Water and Wastewater Subordinate Lien Revenue Refunding Bonds, Series 2026 (Sustainability Bonds). Concurrently, KBRA assigns a long-term rating of AA- to the City's outstanding Water and Wastewater Subordinate Lien Revenue Bonds, and a long-term rating of AA to the City's outstanding Water and Wastewater Senior Lien Revenue Bonds. The Outlook is Stable.
The long-term rating reflects the experienced management profile, formalized financial and debt policies, and disciplined multi-year budgeting and capital planning practices of the City of Atlanta (the “City”) Department of Watershed Management (“DWM” or the “Department”). Local funding support from the proceeds of a Municipal Option Sales Tax (“MOST”) are a central element of the Department’s financial framework, supporting both operations and pay-go funding of capital improvements. These strengths have underpinned the Department’s ability to manage the sizable financial demands of its wastewater consent decree obligations and other major investments with no rate increases since 2012, while maintaining sound historical debt service coverage and strong liquidity.
The rating is also supported by a large, growing, and generally affluent service area that provides stable demand and a broad, well-diversified customer base. Operationally, DWM benefits from meaningful water supply resilience and an established enterprise risk management framework, which support system reliability and business continuity. The current $1.46 billion five-year capital improvement program is manageable and supported by a funding strategy that is almost 50% pay-go funded, helping moderate future borrowing needs while maintaining investment in core infrastructure.
Counterbalancing the aforementioned strengths are the Department’s already-elevated retail rate burden and the resulting constraints on future rate flexibility. Although water and wastewater rates have remained unchanged since FY 2012, customer charges remain high relative to peers, contributing to affordability concerns that could complicate the implementation of future revenue measures if needed to support additional capital investment. Rate-setting flexibility is further moderated by the governance structure, as rates are established by City Council rather than by an independent utility board, which may lengthen response time or increase political sensitivity around future adjustments. In addition, while the Department’s regulatory burden has declined materially from prior years, compliance-related obligations remain ongoing, particularly on the wastewater side, where consent decree-related work and other treatment and rehabilitation needs continue to require management attention and capital resources.
Key Credit Considerations
The ratings were assigned because of the following key credit considerations:
Credit Positives
- Experienced management, formalized financial and debt policies and disciplined multi-year budgeting and capital planning have supported sound historical debt service coverage.
- A large, growing and generally affluent service area with stable demand and broad customer diversification provides a strong underlying revenue base for the System.
- MOST revenues provide substantial support for operations and pay-go capital funding, allowing DWM to manage significant capital needs without rate increases, while maintaining moderate leverage and preserving liquidity.
Credit Challenges
- High retail rates, despite a lack of rate increases since FY 2012, contribute to affordability pressure and may constrain future rate-setting flexibility.
- Major water main breaks in 2024 underscore ongoing asset age and reliability risks. Long-term capital needs are preliminarily estimated to total billions of dollars over the next two decades.
- The lenient Subordinate Bond legal structure features a sum-sufficient rate covenant and additional bonds test, and no debt service reserve.
- MOST revenues are subject to voter renewal in 2028 and legislative reauthorization in 2032 and are not pledged to bondholders.
Rating Sensitivities
For Upgrade
- Continued execution of CIP and remaining regulatory requirements without material weakening of leverage, debt service coverage, liquidity or rate affordability.
- Demonstrated progress in prioritizing and funding long-term System reinvestment needs.
For Downgrade
- Material deterioration in debt service coverage, liquidity or leverage, whether driven by rising capital needs, operating cost pressure, or weaker than expected collections.
- Weakening of MOST support and/or evidence of limited rate flexibility due to lack of affordability that impedes DWM’s timely response to emerging capital or operating pressures.
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