LTC 478-2017 Moodys Rating on the City of Miami Beach, Florida SMIAMIBEACH
City of Miami Beach, 1700 Convention Center Drive, Miami Beach, FL 33139, www.miamibeachfl.gov
�-rc # q�7g_2p�7 LETTER TO COMMISSION
TO: Mayor Philip Levine and Members ;af the City C
FROM: Jimmy L. Morales, City Manager �
DATE: October 4, 2017
SUBJECT: Moody's Rating on the City of Miam� Beach, Florida Stormwater Revenue Bonds
The purpose of this Letter to Commission is to advise you of the results of a credit review done by
Moody's on the City's Stormwater Revenue Bonds.
Moody's Investors Service has affirmed the Aa3 rating and changed the outlook from negative to
stable on the City of Miami Beach's (FL) $180 million Stormwater Revenue Bonds.
Moody's Aa3 rating is based on the Stormwater system's healthy liquidity position, adequate debt
service, and mature service area and high leverage. Credit strengths that the City's possesses are
strong cash reserves and willingness to raise rates in concert with additional debt. Credit challenges
include adequate debt service coverage and highly leveraged system with significant additional debt
expected.
The Moody's stable outlook reflects their expectation that the City will manage significant additional
debt of the system, which provides an essential service given the City's location on a barrier island,
with timely rate increases, maintaining coverage and cash levels.
Moody's indicates factors that could lead to an upgrade would be significant increase in debt service
coverage and significant reduction in debt burden. Moody's also indicates factors that could lead to a
downgrade would be additional debt without timely rate increases, resulting in weakened debt
service coverage and significant declines in liquidity. Although the City is meeting its legal coverage
requirements under the Bond Resolution, its coverage is relatively less than other credits in the Aa3
category, noting specifically that our legal rate covenant of 110% was weak.
The Stormwater system will likely maintain adequate financial operations given healthy liquidity and
a history of timely rate increases. Management has typically increase rates prior to significant debt
issuances, including substantial 84% increase in fiscal 2015 and a 36% increase in 2017.
If you have any questions or need additional information please contact John Woodruff, Chief
Financial Officer.
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J LM/JW/AW
CREDIT OPINION Miami Beach (City of), FL Stormwater
4 October 2017
Enterprise
update Update: Moody's assigns stable outlook and affirms Aa3 on
Miami Beach, FL's Stormwater Rev. Bonds
Contacts
Valentina Gomez 212-553-4861
Analyst
valentina.gomez@moodys.com
Gregory W. Lipitz 212-553-7782
VRSr C�edit Officer/
Manager
gregory.li pitz@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 Rating Rationale
Moody's Investors Service has affirmed the Aa3 rating and changed the outlook from
negative to stable on the City of Miami Beach's (FL) $180 million Stormwater Revenue
Bonds.
The Aa3 rating is based on the system's healthy liquidity position, adequate debt service,
mature service area and high leverage.
Credit Strengths
» Strong cash reserves
» Willingness to raise rates in concert with additional debt
Credit Challenges
» Adequate debt service coverage
» Highly leveraged system with significant additional debt expected
Rating Outlook
The stable outlook ref�ects our expectation that the city will manage significant additional
debt of the system, which provides an essential service given the city's location on a barrier
island, with timely rate increases, maintaining coverage and cash levels.
Factors that Could Lead to an Upgrade
» Significant increase in debt service coverage
» Significant reduction in debt burden
Factors that Could Lead to a Downgrade
» Additional debt without timely rate increases, resulting in weakened debt service
coverage
» Significant declines in liquidity
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, MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE
Key Indicators
Exhibit 1
MIAMI BEACH (qNOF) FLSfORMWATfftBJT�iPFiISE
9�stem Charaderistics
Asset Condition (Net FxedAssets/ Annual Depreaation)
9,istem 9ze- O&M (in $OOOs)
ServiceArea W�Ith: MF %of USmedian
Legal Provisons
RateCovenant (x)
Debt Se�vice F�erve F�quirement
Management
Ft�te Management
F�gulatory Complianceand Capital Ranning
Fnanaal 3rength
Operffiing F�venue ($000)
9,��em 9ze- O&M (in $OOOs)
Net Funded Debt ($000)
Mnual Debt �ervice Coverage (x)
Cash on Hand
Debt to Operat ing F�venues (x)
Source: Moody's /nvestors Service, Audited Flnancial Statements
96 years
5,551
88.60%
1.10x
No explidt DSF�F; or funded with �ecul at ive grade s�rety (Baa and Below)
Aa
Aa
zoiz
11,612
4,252
39,099
2.44x
757 days
3.4x
2013
11,672
3,445
49,266
2.34x
1056 days
42x
2014
11,715
3,722
63,486
1.41x
1083 days
5.4x
2015
21,258
5,566
76,313
2.89x
583 days
3.6x
2016
21,491
5,551
112,540
1.55x
991 days
5.2x
Recent Developments
Hurricane Irma recently made landfall in Florida. According to management, the stormwater system performed we(l and the system
had about 5200,000 in unexpected expenditures. Management expects most of that amount to be reimbursible from FEMA.
Detailed Rating Considerations
Service Area and System Characteristics: Mature System on Barrier Island Susceptible to Flooding, Hurricane Risks
The large stormwater system's service area covers 4,200 acres and extends beyond Miami Beach, induding adjacent islands. Miami
Beach is one of 33 municipalities that is a co-permittee with Miami-Dade County through the National Pollutant Discharge Elimination
System. The current permit expires in Z020 (they are typically awarded for four-year periods), and the system is in compliance with
all relevant regu�atory bodies. Notably, as a barrier island, the city is subject to greater stormwater needs than most US stormwater
systems. A significant portion of the system lies at an elevation below z.2-feet. The city's projections indude increased wlnerability to
flooding. The capital plan addresses mitigating these challenges.
The stormwater fee is imposed on properties based on Equivalent Residential Units (ERUs) which currently stands at 109,000 ERUs,
representing a population base of 87,779 according to the 2010 Census. The customer base is expected to remain stable in this mature,
tourism dependent service area. The stormwater fee is bi�led as part of the water, sewer and garbage bill, and collection rates have
historical�y been high.
Debt Service Coverage and Liquidity: Adequate Debt Service Coverage Mitigated by Strong Liquidity
The stormwater system will likely maintain adequate financial operations given healthy liquidity and a history of timely rate increases.
Management has typically increased rates prior to significant debt issuances, induding a substantial 84% increase in fiscal 2015 and a
36% increase in 2017. Current projections indude an additional rate increase in 2019 of 19% prior to another debt issuance.
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 4 October 2017 Miami Beach (City of), FL Stormwater Enterprise: Update: Moody's assigns stable outlook and affirms Aa3 on Miami Beach, FL's Stormwater Rev. Bonds
MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE
Debt service coverage has historically been adequate. In fiscal 2016 coverage was 1.55 times. Management projects that coverage will
be simi�ar in 2017. Debt service coverage will likely remain in the 1.3- to 1.5-times range over the near term. This level is relatively weak
for the Aa3 rating category, and therefore any inability to maintain coverage at these levels as additional debt is issued could represent
a significant weakening of credit quality.
LIQUIDITY
Fiscal Z016 ended with $15 million in unrestricted cash and investments or a strong 991 days cash on hand. Additiona�ly, the system
maintains $6 mi�lion in a Rate Stabilization fund. These rate stabilization funds are restricted by designation by the city commission,
which can release them as needed. There are no current plans to materially draw on cash, a positive credit factor as the system's strong
liquidity is the most meaningfu� counterweight to the system's below average debt service coverage.
Debt and Legal Covenants: Highly Leveraged System With Additional Debt Expected
The system is highly leveraged and the capital plan indudes significant additiona� debt. The system's debt will more than double over
the next five years with a$100 million issuance expected in z018 and another 5100 million issuance in 2020. Proceeds will fund a
variety of projects induding conversion to a pump system from a gravity fed system to address the city's vulnerability to flooding.
The system's capital plan indudes $500 million of projects, which management expects to address over the next 10 years. Debt to
operating revenues was a high 5.2 times in fiscal 2016. As long as revenue increases keep pace with debt issuance, this ratio will not
grow.
Legal provisions are weak with a rate covenant of 1.1 times annual senior (ien debt service; an additiona� bonds test requiring net
revenues for any 12 of the 18 preceding months to be 1.1 times MADS on the current and proposed bonds or 1.1 times MADS on the
current and proposed bonds for the future in order to issue parity debt. The flow of funds is liberal in that it al�ows an open loop
structure whereby the system can transfer funds to the city's General Fund if needed. There is no debt service reserve fund for the 2015
or 2009 bonds. The 2011 bonds have a debt service reserve funded at MADS.
DEBTSTRUCTURE
All the system's debt is fixed rate.
DEBT-RELATED DERIVATIVES
The system has no exposure to derivatives.
PENSIONS AND OPEB
Pensions are not a significant factor in this methodology.
Management and Governance
System management is generally strong and has the legal ability to raise rates without third party approval. The utility has independent
rate-setting authority. Management is generally conservative in its projections and budgets for a 1.Z times rate covenant annually.
Positively, management has implemented significant rate increases prior to additional debt issuances. Any inability to pass future rate
increases as additional debt is issued will pressure the rating.
Legal Security
The bonds are secured by the net revenues of the system.
Use of Proceeds
Not applicable.
Obligor Profile
City of Miami Beach Stormwater system covers 4,Z00 acres and services 109,000 ERUs. Miami Beach had a population of 91,026 in
2014.
Methodology
The principal methodology used in this rating was US Municipal Utility Revenue Debt published in December 2014. Please see the
Rating Methodologies page on www.moodys.com for a copy of this methodology.
3 4 October 2017 Miami Beach (City of), FL Stormwater Enterprise: Update: Moody's assigns stable outlook and affirms Aa3 on Miami Beach, FL's Stormwater Rev. Bonds
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4 October 2017 Miami Beach (City of), FL Stormwater Enterprise: Update: Moody's assigns stable outtook and affirms Aa3 on Miami Beach, FL's Stormwater Rev. Bonds
U.S. PUBLIC FINANCE
MOODY'S INVESTORS SERVICE
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4 October 2077 Miami 8each (City of), FL Stormwater Enterprise: Update: Moody's assigns stable outlook and affirms Aa3 on Miami Beach, FL's Stormwater Rev. Bonds