LTC 388-2023 S&P Credit Ratings for Water & Sewer Revenue BondsMIAMI BEACH
OFFICE OF THE CITY MANAGER
NO. LTC # 388-2023 LETTER TO COMMISSION
TO: Honorable Mayor Dan Gelber and Members of the City
�::::
s
:::a T. Hudak, City Manag�
DATE: September 5, 2023
SUBJECT: S&P Credit Ratings for Water & Sewer Revenue Bonds
The purpose of this L TC is to advise the City Commission regarding the results of
a recent credit review completed by Standard & Poor's Global Ratings (S&P) on
the City's Water & Sewer Revenue bonds.
•S&P has affirmed the current AA-rating on the City of Miami Beach's
Water & Sewer Revenue bonds with a positive outlook.
S&P stated:
•"The positive outlook reflects a continued strong trend in the utility's overall
financial position, including cash and debt service coverage, which we
expect will continue despite additional debt plans, due to approved rate
increases."
•"We could raise the rating should concrete additional debt plans
demonstrate a continued track record of similar financial metrics."
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 Jason D. Greene, Chief Financial Officer.
,JI & ) ATH/JDG
L e tt e r to C o m m is s io n
S &P C re d it R a tin g s fo r W a te r & S e w e r R e v e n u e B o n d s
S ep t e m b er 1 , 2 0 2 3
P a g e 2 o f 2
R a ting A gency C re d it S cale
S&P Moody's Rating Description
AAA Aaa Prime
AA+ Aa1
AA Aa2 High grade
AA- Aa3
A+ A1 Upper medium Investment-grade
A A2
A- A3
grade
BBB+ Baa1 Lower medium
BBB Baa2
BBB- Baa3
grade
BB+ Ba1 Non-investment
BB Ba2 grade speculative
BB- Ba3
B+ B1
B B2 Highly speculative
B- B3 Non-investment
CCC+ Caal Substantial risks grade
CCC Caa2
Extremely AKA high-yield bonds
speculative AKA junk bonds
CCC- Caa3 Default imminent
cc Ca with little prospect
C for recovery
C
D I In default
S&P Global
Ratings
R a ti ngsDi rect
Summary:
Miami Beach, Florida; Water/Sewer
Primary Credit Analyst:
Adam Torres, New York+ 1 (212) 438 1141; adam.torres@spglobal.com
Secondary Contact:
Alan B Shabatay, New York+ 1 (212) 438 9025; alan.shabatay@spglobal.com
Table Of Contents
Credit Highlights
Outlook
Credit Opinion
Related Research
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S u m m a r y :
Miami Beach, Florida; Water/Sewer
Credit Profile
Miami Beach WS
Long Term Rating AA-/Positive Affirmed
Credit Highlights
• S&P Global Ratings affirmed its 'AA-' rating on the City of Miami Beach, Fla.'s water and sewer revenue bonds
outstanding.
• The outlook is positive.
Secu rity
Bonds are secured by net revenues of the city's water and sewer systems. Although the city owns and operates the
water distribution system, it purchases all of its water from Miami-Dade County. Meanwhile, we believe bond
provisions are somewhat permissive; given a 1. lx annual debt service rate covenant and sufficiency when including
transfers from the rate stabilization fund, along with an open flow of funds. However, historically, the city has not had
to rely on such transfers to maintain coverage. Remaining legal provisions are fairly standard. As of fiscal 2022, the
system has about $141 million in debt outstanding.
Cred it overview
The positive outlook reflects a continued strong trend in the utility's overall financial position, including cash and debt
service coverage (DSC), which we expect will continue despite additional debt plans, due to approved rate increases.
The utility has exhibited very strong to extremely strong financial metrics in recent years. Although these trends are
likely to continue, there is some uncertainty as to the projected ranges during the outlook period, due to additional
debt plans, likely in fiscal 2024 or fiscal 2025. Likewise, while we expect cash will remain very strong, there is some
uncertainty regarding the magnitude and timing of projected drawdowns in concert with the capital plan.
Finally, management has made efforts to pro actively absorb capital plan costs, by way of three approved annual rate
increases: 5.5% for water and 2.4% for sewer. Furthermore, this is in addition to any automatic pass-through increases
from the county relative to water purchases.
The rating further reflects:
• Service area participation in the broad and diverse Miami-Fort Lauderdale-West Palm Beach metropolitan statistical
area economy;
• Robust liquidity, as evidenced by the utility having well over a year's worth of operating expenses, along with a
similar track record of very strong all-in DSC;
• 100% conveyance water and sewer system supported by a strong management team, long-range planning, and
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Sum mary: M iam i Beach, Florida; Water/Sewer
policies to support the system ; and
• T he potential fo r rising costs as M iam i-D ade County increases rates.
Environmental, social, and governance
In our opinion, there is heightened envi ro nm ental risk gi ven the county is located on the east coast of Fl orida wi th
exposure to m or e significant storm events and hurricanes. M anagem ent indicated it has m ade upgrades to harden
stru ctur es to wi thstand storm events and has em ergency outfa lls, backu p generators, and interties wi th neighboring
utilities. In addition, som e risk is transfe rr ed to the county as it treats the water and sew er effl uent. In term s of social
risk, w e believe this is present in the fo rm of rates; w hile ra tes are m anageable fo r the servi ce area's w ealth and incom e
levels, that the pass-thro ugh portion is dictated by the county does contribute to potential ongoing un certainty. Lastly,
govern ance is in line wi th that of peers. M anagem ent is fo rw ard looki ng w hen addressing fu tur e water and w astew ater
supply reliability and capital needs. M anagem ent revi ew s ra te-setting and capital needs annually.
Outlook
T he positive outlook reflects our expectation that should addi tional debt plans resul t in financial pro jections in line
wi th recent history, w e could ra ise the ra ting. We w ould likewi se expect that any potential pass-thro ugh ra tes wi ll not
ero de affordability, coupled wi th already-appro ved ra te increases.
Downside scenario
If debt or a decrease in the un restricted cash needed to fu nd M iam i Beach's capital plan sign ificantly ero de the
system 's financial m etri c achievem ents in recent years, w e coul d revi se the outlook to stable. In addition, if the
county's actions influence the city system 's financial capacity by stressing all-in D SC , w e could take a negative rating
action.
Upside scenario
We coul d ra ise the rating should concrete additional debt plans dem onstrate a continued tra ck record of sim ilar
financial m etri cs.
Credit Opinion
T he utility serves a diverse set of custom ers, in a built-out area wi th little ro om fo r a significant change in the custom er
base. T herefo re, any increases in expenditures m ust be absorbed by the existing custom er base.
A ccordingly, w e believe the utility has positioned itself especially well fo r the near term , in that w e expect ra te
increases wi ll support debt plans and m aintain existing extrem ely stro ng liquidity. M anagem ent also m aintains a ra te
stabilization fu nd, w hich w e believe wi ll help lim it any potential shocks to rates that m ay arise from county
pass-thro ugh increases.
O verall econom ic indicator s appear stable, but are w eak in som e areas. A lthough the unem ploym ent ra te is below the
national avera ge at 1.4% and m edian household effective buyi ng incom e is 97% of the national avera ge, the county's
poverty ra te is about 15%, wh ich w e consider elevated.
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Summary: Miami Beach, Florida; Water/Sewer
Miami Beach, Florida--Economic and financial data
Fiscal year-end
Most recent 2022 2021 2020 Median (AA)
Economic data
Water customers 19,445
Sewer customers 19,829
MHHEBI of the service area as % of the U.S. 97.0 110.0
Unemployment rate (%) 1.4 4.3
Poverty rate (%) 15.2 10.5
Water rate (6,000 gallons or actual) ($) 28.3 35.0
Sewer rate (6,000 gallons or actual) ($) 77.4 45.0
Annual utility bill as % of MHHEBI 2.3 0.9
Operational Management Assessment Good Good
Financial data
Operating revenues ($000s) 96,756 87,830 81,524 21,711
Total operating expenses less depreciation ($000s) 63,393 62,011 56,596 13,767
S&P Global Ratings-adjusted all-in DSC () 2.1 1.5 1.5 2.2
Unrestricted cash ($000s) 80,958 81,328 65,044 22,334
Days' cash of operating expenses 466 479 419 566
Total on-balance-sheet debt ($000s) 158,634 163,285 168,443 33,692
Financial Management Assessment Standard Good
Note: Most recent economic data available from our vendors. MHHEBI--Median household effective buying income. DSC--Debt service
coverage.
Related Research
• T hro ugh T he ESG Lens 3.0: Th e Intersection O f ESG Credit Factors A nd U.S. Public Finance Credit Factors, M arch
2, 2022
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
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