Loading...
Moody's Investors Service Upgrade of Credit Rating on Water Enterprise Revenue BondsCity of Dubuque City Council Meeting Action Items # 4. Copyrighted May 17, 2021 ITEM TITLE: Moody's Investors Service Upgrade of Credit Rating on Water Enterprise Revenue Bonds SUMMARY: City Manager submitting the credit rating upgrade report from Moody's Investors Service on the outstanding water enterprise revenue bonds. Moody's Investors Service upgraded the City's credit rating of A2 to Al on the water enterprise revenue bonds. SUGGESTED Suggested Disposition: Receive and File DISPOSITION: ATTACHMENTS: Description Type MVM Memo City Manager Memo Staff Memo Staff Memo Water Revenue Bonds Credit Rating Report Supporting Documentation Water Revenue Bonds Rating Upgrade Moody's News Supporting Documentation Release THE C Dubuque DUUB-.'&--FE All-America City .1 Masterpiece on the Mississippi 12-2013 2017*2019 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Moody's Investors Service Upgrade of Credit Rating on Water Enterprise Revenue Bonds DATE: May 12, 2021 Director of Finance and Budget Jennifer Larson is submitting the credit rating upgrade report from Moody's Investors Service on the outstanding water enterprise revenue bonds. Moody's Investors Service upgraded the City's credit rating of A2 to Al on the water enterprise revenue bonds. Moody's Investors Service reviews all its ratings annually and at the time that new general obligation bonds are issued 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. The report cited: • Strong cash reserves. • Strong capital and operating planning. • Unlimited rate setting authority. • Narrow but stable debt service coverage on total debt. • Long term trend of reduced water usage which could impact revenue performance. / � k�41e,15� Michael C. Van Milligen MCVM/jml Attachment cc: Crenna Brumwell, City Attorney Cori Burbach, Assistant City Manager Jennifer Larson, Director of Finance and Budget THE C DUj!B9aTE Masterpiece on the Mississippi TO: Michael C. Van Milligen, City Manager FROM: Jennifer Larson, Director of Finance and Budget Dubuque AIFAneri�a City 2007-2012.2013 2017*2019 SUBJECT: Moody's Investors Service Upgrade of Credit Rating on Water Enterprise Revenue Bonds DATE: May 12, 2021 INTRODUCTION The City of Dubuque received an upgrade to the credit rating on outstanding water enterprise revenue bonds from Moody's Investors Service. Moody's Investors Service upgraded the City's credit rating of A2 to Al on the water enterprise 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 and at the time that new general obligation bonds are issued 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 Credit Opinion report from Moody's Investors Service was overall positive. The report cited: • Strong cash reserves. • Strong capital and operating planning. • Unlimited rate setting authority. • Narrow but stable debt service coverage on total debt. 0 Long term trend of reduced water usage which could impact revenue performance. ACTION REQUESTED This memorandum is for informational purposes only. Attachments JML CREDIT OPINION Dubuque (City of) IA Water Enterprise 12 May 2021 Update following upgrade of revenue bonds to Al Contacts Michael Armstrong +1.312.706.9975 Associate Lead Analyst michael.armstrong@moodys.com Adebola Kushimo +1.214.979.6847 VP -Senior Analyst adebola.kushimo@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Summary Dubuque (City of) IA Water Enterprise (Al) has a very strong cash position and strong capital and operational planning with unlimited rate setting authority. The system has minimal capital needs with a moderate debt burden and narrow but stable debt service coverage. On May 5, 2021, we upgraded the water enterprise's revenue debt to Al from A2. Exhibit 1 Total debt service coverage remains adequate Revenue Debt Service Coverage Total Annual Debt Service Coverage Rate Covenant 8.00 7.00 6.00 rn 5.00 0 w 4.00 m 3.00 'm 2.00 Z 1.00 0.00 2016 2017 2018 2019 2020 Year Only revenue debt service is subject to the covenant of 1.25x, so the water enterprise did not breach its mandated rate covenant. Total annual debt service coverage also includes loans and portions of general obligation debt. Source: Dubuque (City o)9 IA's financial statements and offering documents Credit strengths Strong cash reserves Unlimited rate setting authority Credit challenges Exhibit 2 Cash reserves have grown steadily since 2016 Cash ($000s) Days cash on hand 10,000 9,000 8,000 7,000 a m 6,000 x 0 5,000 L m 4,000 U 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 Year Source: Dubuque (City of) IA's financial statements Narrow but stable debt service coverage on total debt Long term trend of reduced water usage which could impact revenue performance 700 days 600 days 500 days 400 days 300 days 200 days 100 days days Rating outlook Moody's typically does not assign outlooks to local governments with this amount of debt. Factors that could lead to an upgrade Strengthened total debt service coverage Significant system growth Factors that could lead to a downgrade Material reduction of cash reserves Narrowing of debt service coverage Key indicators Exhibit 3 Dubuque (City of) IA Water Enterprise System Characteristics Asset Condition (Net Fixed Assets/ Annual Depreciation) 43years System Size- O&M (in $OOOs) $5,477 Service Area Wealth: MR %of US median 94.18% Legal Provisions Rate Covenant (x) 1.25 Debt Service Fbserve Plaquirement DSFFfunded at lesser of standard 3-prong test (Aa) Management Rate Management Aa Fbgulatory Complianceand Capital Ranning A Financial Strength 2016 2017 2018 2019 2020 OperatingRevenue ($000) $8,407 $8,553 $8,906 $8,959 $9,273 System Sce- O&M ($000) $4,839 $4,653 $5,045 $5,795 $5,477 Net F;bvenues($000) $3,676 $3,937 $3,922 $3,368 $4,021 Net Handed Debt ($000) $21,536 $25,989 $28,071 $26,714 $27,458 Annual Debt Service($000) $1,530 $1,755 $2,424 $3,045 $3,575 Annual Debt Service Coverage (x)ll 2.4x 2.2x 1.6x 1.1x 1.1x Cash on Hand 248 days 422 days 550 days 458 days 597 days Debt to Operating Fevenues(x) 2.6x 3.Ox 3.2x 3.Ox 3.Ox [1] Annual debt service includes debt service for revenue bonds, loans and the water enterprise's share of general obligation bonds. Only revenue debt service is subject to the covenant of 1.25x, so the water enterprise did not breach its mandated rate covenant. Source: US Census Bureau and Dubuque (City ofl IA financial statements Profile The enterprise provides water treatment for the City of Dubuque (Aa3), located in northeastern Iowa (Aaa stable) across the Mississippi River from Wisconsin (Aa1 stable) and Illinois (Baa3 stable), serving a resident population of nearly 60,000. Raw water is drawn from four deep wells with a capacity of 8 million gallons per day and five shallow wells that provide 13 million gallons per day. Water is then treated at the Eagle Point Water Plant (rated at 20 million gallons per day) and stored in one of three of three elevated tanks, three stand pipes and an underground reservoir with a combined capacity of 17.5 million gallons. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, 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 12 May 2021 Dubuque (City of) IA Water Enterprise: Update following upgrade of revenue bonds to Al Detailed credit considerations Service area and system characteristics: stable service area serves as regional economic center The city serves as a trade and service center for a large tri-state region and also benefits from its role as the Dubuque County (Aa2) seat and home to three small colleges with combined enrollment of approximately 5,000 students. Resident income levels are slightly below national average at 94.2% of the national median. Like many water systems across the country, Dubuque has experienced a steady decline in water usage, spurred largely by increased conservation efforts. In fiscal 2020, the system billed for 1.74 billion gallons, down 10.6% from a peak of 1.94 billion gallons in fiscal 2013. Over that same period, water connections increased 5.4% and revenues, bolstered by rate increases, grew 33.7%. Consistent with the residential nature of the service area, the customer base is not materially concentrated with the ten largest customers accounting for just 10.7% of total water receipts in fiscal 2020. The system has sufficient water supply and treatment capacity to serve future growth. As of fiscal 2020, based on current depreciation, the system had a remaining useful life of 43 years. Debt service coverage and liquidity: narrow total debt service coverage will strengthen, cash financing of capital will limit reserve growth Debt service coverage and unrestricted liquidity are currently strong, and based on management's projections will stabilize and strengthen over the next several years. In fiscal 2020, total debt service coverage, which includes revenue debt, loans and portions of general obligation bonds, was sufficient at 1.1x. Improvement of debt service coverage has been supported by annual rate adjustments including a 3% hike in fiscal 2020. Based on tentative annual rate increases of 5%, total debt service coverage will steadily increase annually to reach 1.6x in fiscal 2025. Debt service coverage for revenue bonds was solid at 2.8x up from a weak negative 0.1x in fiscal 2014. Previously weak revenue debt service coverage was significantly impacted by a large number of main breaks and fluctuations in water usage. Management's projections for revenue debt service coverage are stable through fiscal 2023 at about 2x, after which it will increase steadily to 2.5x in fiscal 2026. Management projects capital projects financed by cash reserves will reduce cash on hand, but due to conservative budgeting practices we do not believe this reduction will be significant enough to have a material impact on the overall credit profile. Liquidity The cash position is strong, but expected to weaken over the next several years due to planned capital projects. Unrestricted system liquidity was $9 million and a very strong 597 days of operations. We expect reserves will remain on par with similarly rated peers even after planned cash financing of capital projects. Debt and legal covenants: moderate debt burden, standard legal covenants The debt burden will remain moderate given limited plans for future borrowing. The water enterprise's debt ratio was equivalent to a moderate 3.Ox system revenue. Legal provisions include a rate covenant and additional bonds test of 1.25x maximum annual debt service (MARS) on all senior lien revenue bonds and a debt service reserve requirement equal to the lesser of 10% of principal on senior lien bonds, maximum annual debt service (MADS) on all outstanding parity bonds, or 125% of average annual debt service on outstanding bonds. The debt service reserve is funded with cash. Legalsecurity The system's water revenue debt is secured by a senior lien pledge on net revenues of the water enterprise. Debt structure All of the system's debt is fixed rate and long-term and include $4.2 million of revenue bonds, $11.6 million of general obligation bonds that are being repaid from water revenue, $10.2 million of capital loan notes from the State of Iowa State Revolving Loan Funds and a $5 million loan from the Iowa Association of Regional Utilities. The final maturity among all of these debt issues is in 2040. Debt -related derivatives The water enterprise does not have any derivative exposure. Pensions and OPEB System employees are members of the Iowa Public Employees Retirement System (IPERS), a multi -employer cost sharing plan. The utility reimburses the city for pension and other post employment benefits (OPEB) contributions. As of fiscal 2020, the system's 12 May 2021 Dubuque (City of) IA Water Enterprise: Update following upgrade of revenue bonds to Al adjusted net pension liability (ANPL) was $4.9 million, equivalent to 0.5% of operating revenue. The unfunded OPEB liability is negligible. Direct pension contributions and the implicit costs associated with OPEB were $144,000 and $9,000 in fiscal 2020, respectively, and made up a low 2.8% of the water enterprise's operating expenditures. ESG considerations Environmental Environmental risk is generally low for the local government sector and does not factor materially into the water enterprise's credit profile. Data from Moody's affiliate Four Twenty Seven indicate that Dubuque County has high exposure to heat stress and moderate exposure to extreme rainfall events compared to other counties nationally, but neither have a material credit impact on the water enterprise. Social Social considerations such as demographics, labor force, income and education are material considerations that influence the region's economy, demographic, financial and leverage trends. The city's poverty rate of 15.6% slightly exceeds the national average of 13.4%. As of February 2021, Dubuque County's unemployment rate was 4.7%, on par with the statewide figure and below the nation (6.6%). We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for the City of Dubuque given the measured but minimal impact it had on financial operations in the latter half of fiscal 2020, projections for recovery of affected revenue sources in fiscal 2021 and federal funding support from the American Rescue Plan Act. Governance The Dubuque Water System is an enterprise of the City of Dubuque. City Council has autonomous authority to set rates and charges. After a covenant breach in 2014, management has partnered with a financial advisor to produce five year cash flow projections to avoid future covenant infractions. The city manages to maintain a minimum senior lien coverage of 1.35x and operating reserves equal to at least 20% of operations. A rate increase of 3% has been approved by the council for fiscal 2022. 12 May 2021 Dubuque (City of) IA Water Enterprise: Update following upgrade of revenue bonds to Al © 2021 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL -BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION, IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third -party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Moody's Investors Service, Inc., a wholly -owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody's Investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than S%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy." Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94105136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly -owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly -owned by Moody's Overseas Holdings Inc., a wholly -owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly -owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Nan-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER 1281167 12 May 2021 Dubuque (City of) IA Water Enterprise: Update following upgrade of revenue bonds to Al CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 E M EA 44-20-7772-5454 MOODY'S INVESTORS SERVICE 12 May 2021 Dubuque (City of) IA Water Enterprise: Update following upgrade of revenue bonds to Al MOODY'S INVESTORS SERVICE Rating Action: Moody's upgrades to Al Dubuque (City of) IA Water Enterprise's revenue bonds 05 May 2021 New York, May 05, 2021 -- Moody's Investors Service has upgraded to Al from A2 Dubuque (City of) IA Water Enterprise's outstanding revenue bonds. The water enterprise has $28 million in long term debt, of which $4.2 million is outstanding revenue bonds. RATINGS RATIONALE The upgrade to Al reflects the water enterprise's very strong cash position, updated system condition, and strong capital and operational planning with unlimited rate setting authority. The rating also incorporates a moderate debt burden, strong debt service coverage on senior lien parity debt which narrows but remains adequate when considering total debt service coverage. RATING OUTLOOK Moody's typically does not assign outlooks to local governments with this amount of debt. FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING - Strengthened total debt service coverage - Significant system growth FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING - Material reduction of cash reserves - Narrowing of debt service coverage LEGAL SECURITY The system's water revenue debt is secured by a senior lien pledge on net revenues of the water enterprise. PROFILE The enterprise provides water treatment for the City of Dubuque (Aa3), located in northeastern Iowa (Aaa stable) across the Mississippi River from Wisconsin (Aal stable) and Illinois (Baa3 stable), serving a resident population of nearly 60,000. Raw water is drawn from four deep wells with a capacity of 8 million gallons per day and five shallow wells that provide 13 million gallons per day. Water is then treated at the Eagle Point Water Plant (rated at 20 million gallons per day) and stored in one of three of three elevated tanks, three stand pipes and an underground reservoir with a combined capacity of 17.5 million gallons. METHODOLOGY The principal methodology used in these ratings was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC 79004. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068 . Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Michael Armstrong Lead Analyst PFG Admin Moody's Investors Service, Inc. 100 N Riverside Plaza Suite 2220 Chicago 60606 JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Adebola Kushimo Additional Contact REGIONAL_ SOUTHWEST JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 MOODY'S INVESTORS SERVICE © 2021 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT -LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH CURRENT OPINIONS. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL -BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third -party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, aqents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Moody's Investors Service, Inc., a wholly -owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody's Investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy." Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761 G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761 G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly -owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly -owned by Moody's Overseas Holdings Inc., a wholly -owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly -owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately J PY550, 000, 000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.