KBRA Affirms AA Rating for Narragansett Bay Commission (RI) WIFIA Loans; Outlook Stable
24 Sep 2024 | New York
KBRA affirms the long-term rating of AA with a Stable Outlook for the Narragansett Bay Commission’s (NBC) Combined Sewer Overflow Phase III Facilities Water Infrastructure Finance and Innovation Act loan (WIFIA) and the Bucklin Point Resiliency Improvements WIFIA loan. The rating affirmation reflects the NBC’s sound financial performance supported by the timely and adequate sewer rate increases, a diverse customer base with competitive sewer rates, and the WIFIA loans’ solid security provisions.
Credit challenges center on the rate regulatory oversight by the Rhode Island Public Utility Commission (PUC), and the large capital program which is predominantly debt funded, increasing NBC’s debt burden and annual debt service through the capital plan. KBRA notes NBC has historically received constructive PUC rate treatment, particularly given the critical and mandated (state/federal) nature of the majority of the capital plan.
Key Credit Considerations
The rating is affirmed because of the following key credit considerations:
Credit Positives
- Favorable history of rate setting, with the ability to use an expedited regulatory rate review process to maintain adequate debt service coverage.
- Largely residential and modestly growing customer base, with competitive wastewater rates.
- Comprehensive long-term financial and capital planning process which is updated on an annual basis.
Credit Challenges
- Rate increases are subject to regulatory review by the PUC. Positively, NBC has a history of constructive rate reviews by the PUC to date.
- Leverage, as measured by total debt to net plant, and annual debt service are rising as NBC funds the large capital program. Debt service coverage is projected to approximate the rate covenant over the five-year forecast.
Rating Sensitivities
For Upgrade
- Under budget completion of NBC’s large capex, with lower debt requirements and financial coverage materially above the projected minimally required debt service coverage.
For Downgrade
- Less favorable rate regulatory environment, with debt service coverage below financial projections.
To access rating and relevant documents, click here.