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LTC 527-2022 Moody's upgrades Miami Beach Water & Sewer Revenue Bonds Credit RatingMIAMI BEACH OFFICE OF THE CITY MANAGER No. LTC # 527.2022 LETTER TO COMMISSION TO: Honorable Mayor Dan Gelber and Me rs of the City Commission FROM: Alina T. Hudak, City Manae DATE: December 21, 2022 SUBJECT: Moody's upgrades Miami Beach Water & Sewer Revenue Bonds Credit Rating The purpose of this LTC is to advise the City Commission regarding the recent rating review and upgrade of the City's Water & Sewer Revenue Bonds. The City currently has Series 2017 and 2021 Water & Sewer Revenue Bonds outstanding of approximately $138 million. The rating was upgraded to Aa2 from Aa3 and the outlook has been revised to stable from positive. Major factors in the rating rational were low debt burden, above average debt service coverage supported by automatic annual rate increases and significant investment in sea -level rise mitigation, including raising roads and sidewalks. Major factors in the rating outlook were strong management of assets, automatic pass through of rate increases from Miami -Dade County and automatic annual rate increases by CPI. The City's investments in mitigating physical climate risks were also incorporated into the rating outlook. Please find attached a rating agency credit scale for your information as well as a copy of the credit rating report. Should you have any inquiries regarding this information, please contact Kathie Brooks, Interim Chief Financial Officer. ATH/KB Letter to Commission Moody's upgrades Miami Beach Water & Sewer Revenue Bonds Credit Ratings December 21, 2022 Page 2 of 2 Rating Agency Credit Scale S&P Moody's Rating Description AAA Aaa Prime Investment-grade AA+ Aa1 I ligh grade AA Aa2 AA— Aa3 A+ Al Upper medium grade A A2 A— A3 BBB+ Baal Lower medium grade BBB Baal BBB— - Baa3 BB+ Bal Non -investment grade speculative Non -investment grade AKA high -yield bonds AKA junk bonds BB Bat BB— Ba3 B+ 131 Highly speculative B 132 B— 63 CCC+ C:aa1 Substantial risks CCC CCC— Caa2 Extremely speculative Caa3 Default imminent with little prospect for recovery CC Ca C D C In default MOODY'S Rating Action: Moody's upgrades to Aa2 Miami Beach, FL's Water and Sewer Revenue bonds; outlook stable 19 Dec 2022 New York, December 19, 2022 -- Moody's Investors Service has upgraded to Aa2 from Aa3 the rating on the City of Miami Beach, FL's water and sewer revenue bonds. The enterprise has approximately $138 million in outstanding debt. The outlook has been revised to stable from positive. RATINGS RATIONALE The upgrade to Aa2 aligns the water and sewer revenue rating with the City of Miami Beach's issuer rating (Aa2 stable) and reflects the utility's very low debt burden and above-average debt service coverage supported by automatic annual rate increases. Although cash is somewhat narrow for the rating category, this is offset by the fact that the city is not responsible for treatment, which is done by Miami -Dade County (water and sewer rating Aa3 stable). The system is a business -type enterprise of the city, which benefits from a tourism -based economy, strong overall finances and an ample full value per capita that has doubled in the last decade. The city is located on a barrier island, however, and is very susceptible to sea -level rise and hurricane risk. The city has invested significantly in sea -level rise mitigation, particularly through its separate stormwater enterprise, as well as raising roads and sidewalks. RATING OUTLOOK The stable outlook is driven by the city's strong management of assets and automatic pass through of rate increases from the county as well as automatic annual rate increases by CPI. The city's ongoing investment in mitigating physical climate risks is also incorporated into the rating outlook. FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS - Significantly improved cash and reserve levels FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS - Narrowed debt service coverage - Significant additional debt LEGAL SECURITY The bonds are secured by the net revenues of the city's combined water and sewer system. USE OF PROCEEDS Not applicable PROFILE The water and sewer enterprise provide retail water and sewer services to the residents of Miami Beach, Florida, which had a population of 94,000 in 2020. The enterprise serves approximately 13,745 and 10,046 accounts, respectively. Water supply and treatment, as well as wastewater treatment, is provided by Miami -Dade Water and Sewer enterprise. METHODOLOGY The principal methodology used in these ratings was US Municipal Utility Revenue Debt Methodology published in April 2022 and available at https://ratincis.moodys.com/api/rmc- documents/386721. Alternatively, please see the Rating Methodologies page on htt s: ratings.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 on https://ratings.moodys.com/rating- definitions. 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