Eagle Mountain, UT Water And Sewer Revenue Bond Rating Raised To 'A+' On Continued Financial Strength
CENTENNIAL (S&P Global Ratings) Feb. 21, 2018--S&P Global Ratings raised its long-term rating to 'A+' from 'A' on the City of Eagle Mountain, Utah's water and sewer revenue bonds outstanding. At the same time, S&P Global Ratings assigned its 'A+' long-term rating to the city's water and sewer revenue refunding bonds, series 2018A. The outlook is stable. The series 2018A bond proceeds are refunding the city's outstanding water and sewer revenue and refunding bonds, series 2007. "The upgrade reflects the system's continued financial strength despite a dependence on growth fees," said S&P Global Ratings credit analyst Alexandra Rozgonyi. "We expect management to continue to manage the city's rapid growth by reviewing rates annually and appropriately managing capital needs." The rating reflects a very strong enterprise risk profile and a strong financial risk profile. The enterprise risk profile reflects our view of the system's:
- Rapid service area growth with participation in the broad and diverse Provo-Orem metropolitan statistical area, as the service area is about 30 miles northwest of Provo City and 40 miles southwest of Salt Lake City;
- Affordable service rates in the context of the service area's very strong income levels;
- Very low industry risk as a monopolistic service provider of an essential public utility; and
- Good operational management practices, which focus on water supply and treatment capacity to keep up with rapid growth of the service area.
The financial risk profile reflects the system's:
- Coverage metrics that we believe are heavily reliant on growth-related fees, as demonstrated by extremely strong all-in coverage including impact fees and adequate coverage excluding impact fees during the past three fiscal years;
- Very strong liquidity, with about $7.3 million of cash for fiscal 2017, equivalent to about 600 days of operating expenses;
- Low leverage based on a debt-to-capitalization of about 30%, with no additional debt plans in the near term; and
- Good financial management policies and practices.
The stable outlook reflects our opinion that financial performance should remain sustainable during the two-year outlook time frame, barring any unforeseen reduction in operating margins or growth-related revenues. Any potential for an upgrade, although unlikely during the two-year outlook horizon, would be based on significantly stronger liquidity and stability around future funding for long-term capital needs related to growth. We could lower the rating during the two-year outlook period if operating expenses or wholesale costs rise without being offset by timely rate increases. In addition, we could lower the rating if liquidity materially declines or if all-in coverage metrics do not meet management-provided projections. As of Jan. 1, 2018, the system has a total of $21 million outstanding, including the series 2018A bonds. The city has no further debt plans besides the expected 2018B state loans.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Alexandra Rozgonyi, Centennial (1) 303-721-4824; alexandra.rozgonyi@spglobal.com |
| Secondary Contact: | Tim Tung, San Francisco (415) 371-5041; tim.tung@spglobal.com |
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