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Moody's Investors Service Annual Issuer Comment on Outstanding_Water Revenue Bonds Copyrig hted October 19, 2020 City of Dubuque Consent Items # 15. City Council Meeting ITEM TITLE: Moody's Investors Service Annual Issuer Comment on Outstanding Water Revenue Bonds SUM MARY: City Manager submitting the annual issuer comment report from Moody's I nvestors Service on the outstanding water revenue bonds and affirming the City's credit rating of A2. SUGGESTED Suggested Disposition: Receive and File;Approve DISPOSITION: ATTACHMENTS: Description Type MVM Memo City Manager Memo Staff Memo Staff Memo Moody's Annual Issuer Comment on Outstanding Supporting Documentation Water Revenue Bonds Dubuque THE CTTY O� � D 1fl-America Ciiy UB E µ.��:�ti���, �, i I j�r I � ML�ste i�ce on t�le Mississi i zflo�•�oiz-zois �P pp zoi��za�9 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Moody's Investors Service Annual Issuer Comment on Outstanding Water Revenue Bonds DATE: October 8, 2020 Director of Finance and Budget Jennifer Larson is submitting the annual issuer comment report from Moody's Investors Service on the outstanding water revenue bonds. Moody's Investors Service affirmed the City's credit rating of A2. Moody's Investors Service reviews all its ratings annually in accordance with regulations. Moody's conducts these periodic reviews through portfolio reviews in which Moody's reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodologies, recent developments, and a comparison of the financial and operating profile similarly to rated peers. Moody's issues a press release following each periodic review announcing its completion. I concur with the recommendation and respectfully request Mayor and City Council approval. �JC/"'r�"� �y�,t Michael C. Van Milligen MCVM/jml Attachment cc: Crenna Brumwell, City Attorney Cori Burbach, Assistant City Manager Jennifer Larson, Director of Finance and Budget Dubuque THE CITY OF � All•A�eri�a Ciry DuB E ���,,��a.��;.���� � �, � ► � � Maste iece on the Mississi i zoo�•zo��•zo�3 � pp 2017*2019 TO: Michael C. Van Milligen, City Manager FROM: Jennifer Larson, Director of Finance and Budget SUBJECT: Moody's Investors Service Annual Issuer Comment on Outstanding Water Revenue Bonds DATE: October 8, 2020 INTRODUCTION The City of Dubuque received the annual issuer comment report from Moody's Investors Service on the outstanding water revenue bonds. Moody's Investors Service affirmed the City's credit rating of A2 on the water revenue bonds. BACKGROUND Moody's provides credit ratings and research covering debt instruments and securities. The purpose of Moody's ratings is to provide investors with a simple system to gauge future relative creditworthiness of securities. The firm uses nine rating classifications to designate least credit risk to greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Moody's appends numerical modifiers 1, 2, and 3 to each rating classification. Moody's Investors Service reviews all its ratings annually in accordance with regulations. Moody's conducts these periodic reviews through portfolio reviews in which Moody's reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodologies, recent developments, and a comparison of the financial and operating profile similarly to rated peers. Moody's issues a press release following each periodic review announcing its completion. DISCUSSION The Issuer Comment report from Moody's Investors Service was overall positive. The report cited: • Dubuque Water's credit position is solid. That said, its A2 rating is under the median rating of Aa3 for water systems nationwide. Notable credit factors include a moderate-income service area, robust liquidity, an affordable debt profile, but a small system size and marginal debt service coverage. • The system profile of Dubuque Water is satisfactory overall and is consistent with the assigned rating of A2. The median family income is 91.2% of the US level. On the other hand, the system size, measured as operating and maintenance expenses ($5.8 million), is similar to the US median. • The financial position of Dubuque Water is exceedingly healthy overall and is exceptionally strong relative to its A2 rating. The days cash on hand (458 days) is excellent and greatly exceeds the US median, and it has improved significantly from 2015 to 2019. However, the debt to operating revenues (3.Ox) is elevated and above other Moody's rated water systems nationwide. Additionally, the coverage of the annual debt service by net revenues (1.1x) is narrow and well below the US median. • Legal provisions, which typically include a rate covenant requiring a minimum of 1.Ox coverage of debt service, are adequate for this sector. ACTION REQUESTED This memorandum is for informational purposes only. Attachments JML 2 � � � � . . ISSUER COMMENT City of Dubuque 2 October 2020 Annua� Comment on Dubuque Water RATING Revenue� Issuer Profile nz "o oUt�ook Dubuque Water provides water service to the City of Dubuque in Dubuque County, lowa. The county has a population of 96,802 and a moderate population density of 159 people per square mile.The county's median family income is $76,319 (1st quartile) and the July 2020 contacts unemployment rate was 7% (2nd quartile)2.The System draws its raw water from a total MichaelArmstrong +1312706.9975 of nine wells,treats it at its own Eagle Point Water Plant,and distributes via a series of pipes AssociateLeadAnalyst and booster stations. michael.armstrong@moodys.com Rachel Cortez +1312.706.9956 Credit Overview AssociateManagingDirector Dubuque Water's credit position is solid.That said, its A2 rating is under the median rating of rachel.cortez@moodys.com Aa3 for water systems nationwide. Notable credit factors indude a moderate income service area, robust�iquidity,an affordable debt profile, but a smal�system size and marginal debt CLIENT SERVICES service coverage. Americas 1-212-553-1653 System Characteristics:The system profile of Dubuque Water is satisfactory overall and is Asia Pacific 852-3551-3077 consistent with the assigned rating of A2.The median family income is 91.2%of the US level. Japan 81-3-5408-4100 On the other hand,the system size, measured as operating and maintenance expenses ($5.8 EMEA 44-20-7772-5454 mil�ion), is similar to the US median. Financial Strength:The financial position of Dubuque Water is exceeding�y hea�thy overall and is exceptionally strong relative to its AZ rating.The days cash on hand (458 days) is excellent and greatly exceeds the US median,and it has improved significantly from 2015 to 2019. However,the debt to operating revenues (3.Ox) is elevated and above other Moody's- rated water systems nationwide.Additionally,the coverage of the annual debt service by net revenues (1.1x) is narrow and well below the US median. Legal Provisions: Legal provisions,which typically indude a rate covenant requiring a minimum of 1.Ox coverage of debt service,are adequate for this sector. Sector Trends - lowa Water lowa water and sewer systems'asset condition,as measured by median age of plant, is comparable to systems across the US. lowa systems'financia�metrics are general�y better than the US median. Median debt service coverage of 1.9x and median available liquidity of 54Z days cash are both of Aaa-caliber quality. Utilities maintain somewhat low leverage at 1.4x operating revenue.Water in lowa is abundant,and few water utilities face supply constraints.All utilities have unlimited rate-setting autonomy,which supports financial stability. ... .• EXHIBIT 1 Key Indicators 3 4 Dubuque Water Credit Metrics 2d15 2016 2017 2d18 2d19 US Median Credit Trend Annual Debt 5ervice Co�erage (x) 0.85x 2.40x 2.24x 1.b2x 1.11x 2.10x Stable Days Cash on Hand (Days) 155 248 422 550 45$ 41$ Impro�ed Debt to Operating Revenues(x) 3.Ox 2.6x 3.Ox 3.1x 3.Ox 1.8x Stable Median Family Income(°10 of US 90% 89% 91% 91% 91% 100% Stable Median) Remaining Useful Life of Capital Assets 35 41 37 34 38 31 Stable (Years} Debt and Financial Data($DDDs) 2015 2d16 2d17 2d18 2019 US Median Net Funded Debt $Z2,429 $22,223 $25,768 $27,998 $Z5,645 $30,Z91 Total Revenues $7,612 $8,516 $8,590 $8,966 $9,162 $15,274 Operating and Maintenance $b,3b9 $4,839 $4,�53 $5,045 $5,795 $8,544 Expenses Net Revenues $1,243 $3,676 $3,937 $3,922 $3,3b8 $7,109 Debt Ser�ice $1,4b3 $1,530 $1,755 $2,424 $3,045 $3,002 GovernancelLegal Provisions Score Rate Management Aa Regulatory Compliance and Capital Planning A Rate Covenant Aa Debt Service Reserve Requirement Aa Source:Moody's Investors Service EXHIBIT 2 Days cash on hand has increased from 2015 to 2019 �Days Cash dn Hand L15 Median SO❑ 600 40❑ 200 0 2015 2016 2017 2018 2019 Source:Moody's Investors Service This pubGcation does not announce a credlt rating action.For any credlt ratings referenced in this pubGcation,please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 2 October 2020 City of Dubuque:Annual Comment on Dubuque Water ... .• EXHIBIT 3 Debt service coverage increased from 2015 to 2019 �Net Revenues Debt Serufce��ebt Servfre Coverage-US Medfan Coverage 3.Ox $4,000 -----�--' --------- - ---- ---------------- 2_Ox 52,00❑ 1.Ox $0 2015 2016 2017 2018 2019 Source:Moody's Investors Service EXHIBIT 4 Debt to operating revenues decreased from 2015 to 2019 �ebt to Revenues—Medfan�ebt to Revenues 3.Ox 2_Ox 2015 2096 2097 2018 2099 Source:Moody's Investors Service Endnotes 1 The rating referenced in this report is the rating of the senior most lien on the relevant pledged revenues.Some utilities have bonds separately secured by distinct revenue sources.For these utilities,the reting referenced in this report is the senior most rating only on the relevant revenue pledge(e.g.,water); the utility could have a higher rating on a different type of revenue bond(e.g.,sewer). 2 The demographic data presented,including population,population density,per capita personal income and unemployment rate are derived from the most recently available US government databases.Population,population density and per capita personal income come from the American Community Survey while the unemployment rate comes from the Bureau of Labor Statistics. The largest industry sectors are derived from the Bureau of Economic Analysis.Moody's allocated the per capita personal income data and unemployment data for all counties in the US census into quartiles.The quartiles are ordered from strongest-to-weakest from a credit perspective:the highest per capita personal income quartile is first quartile,and the lowest unemployment rate is first quartile. 3 Moody's calculations of various statistics can be different than calculations reported in audited financial statements or offering documents.Moody's makes standard adjustments to reported financial data,to facilitate comparisons across issuers.For definitions of the metrics in the Key Indicators Table, see our US Municipal Utility Revenue Debt methodology. 4 The medians come from our most recently published report,Medians-Financial performance signals continued stabilitx 3 2 October 2020 City of Dubuque:Annual Comment on Dubuque Water ... .• �O 2020 Moody's Corporation,Moody's Investors Service,Inc,Moody's Analytics,Inc.and/or their licensors and affiliates(collectively,"MOODY'S").All rights reserved. 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