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LTC 426-2025 S&P Credit Rating Upgrade for Water & Sewer Revenue BondsMIAMI BEACH OFFICE OF THE CITY MANAGER LTC # LETTER TO COMMISSION TO: Honorable Mayor Steven Meiner and Members of the City Commission FROM: Eric Carpenter, City Manager fu� DATE: October 6, 2025 SUBJECT: S&P Credit Rating Upgrade 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 Global Ratings raised its long-term rating to 'AA' from 'AA-' on the City of Miami Beach's Water and Sewer Revenue bonds outstanding with a stable outlook. S&P's statement on the rating action: •"The rating action reflects the utility's continued maintenance of robust coverage metrics and growth in liquidity through comprehensive rate setting that passes on costs from wholesale provider Miami-Dade Water and Sewer Department." S&P's outlook: •"The stable outlook reflects our expectation that the utility's rate setting practices will support robust coverage and maintain strong liquidity levels while addressing capital improvement projects related to replacement, rehabilitation, and climate hardening." 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. JOG A'r 'J.s t:7, 426-2025 Letter to Commission S&P Credit Ratings for Water & Sewer Revenue Bonds October 7, 2025 Page 2 of 2 Rating Agency Credit Scale S&P Moody's Rating Description AAA Aaa Prime AA+ Aal AA Aa2 High grade AA-Aa3 A+ Al Upper medium Investment-grade A A2 A-A3 grade BBB+ Baal Lower medium BBB Baa2 grade BBB-Baa3 BB+ Bal Non-investment BB Ba2 grade speculative BB-Ba3 B+ Bl B B2 Highly speculative 8-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&PGlobal Ratings Research l'pdate: RatingsDirect ® Miami Beach, FL Water And Sewer Revenue Bonds Upgraded To 'AA' On Robust Coverage, Liquidity Growth; Outlook Stable October 6, 2025 Overview • S&P Global Ratin gs raised its long-ter m rat ing to 'AA ' from 'AA-' o n the City of M iam i Beach , Fla.'s water and sewer reve nue bo nds o ut standi ng. • Th e outlook is stable. • Th e rat ing action reflect s t he utili ty's co ntinued ma intena nce of robust co ve rage metrics and growth in l iqu idity t h ro ugh comprehens ive rate settin g that passes o n c ost s fro m who lesale provider Miam i -Dade Water and Sewer Department. Rationale Security Th e bo nds are secured by net revenue o f the c it y 's wat er and sewer system s . Although the c it y ow n s and o perates t he water distri bution system , it pu rch ases all its water fro m M iami-Dade County. Meanwhi le , we be li eve bond pro vi sions a re so m ew hat pe r m issive ; given a 1.1x ann ual debt service ra t e covenant and suffic iency whe n includ ing t ransfers from th e rate stabilization f und , along wi th an o pe n flow of f unds. Howeve r , histo ri ca lly , t he c ity has not had to rely on such t rans f e rs to ma i ntain c ove rage. Re main ing legal p ro visions ar e st and ard . As of fi scal 20 24, th e syste m has abo ut $146.5 m illion in de bt ou t sta nd i ng. Credit highlights Th e rating action reflects th e util ity 's robust financial metrics in the past three ye a rs w ith li qu id ity provid in g a mo re-t ha n -ample reserve c ush io n of $104 mi ll ion eq uivalent to 441 days' wort h of operating expenses , w h ic h management expects to mai nta in . Al l-in co verage metri c s have also remained robust , averaging 1.7x in the past three yea r s. Ou r al l-in co verage a nalys is acc ou nts fo r imputed f ixed c harges of M ia mi -Dade debt servi ce , whic h we vi ew as c o nse rv at ive co nsider ing www .spg lob al.com/ratingsdirec t Pru1un C,rnl 1c1 Stefenj oshua D Rasay Was hingt o n DC 1-2023 83 2046 stefen.j o sh ua.rasay @s p glo bal.com \cuind,11, ( ,11ll.tLl ChloeSWeil San Fra ncisco 1-415-371-5 0 26 ch lo e.w eil @s pglobal.com October 6 , 2025 Miami Beach , FL Water And Sewer Revenue Bonds Upgraded To 'AA' On Robust Coverage, Liquidity Growth; Outlook Stable the uti li ty has automatic pass through of these cost metrics. Without fixed costs, debt service coverage (DSC) in the past three years averaged about 3.0x. Given the utility's active rate management, we would expect financial performance commensurate w ith the rating level to continue. However, we also no t e that li mi ti ng fur t her upward rating movement is the sizable capital plan of $300 million, which management has represented will require a combinatio n o f additional debt and avai lable liquidity genera t ed from ex isting cash or rate-generated revenue . The utility signed a declaration of intent to issue $85 million of debt in May 2024 but has not yet finalized plans to go to market. Should the f ull amou nt be issued, the debt-to-capitalization cou ld r ise above the 35% cutpoint, which we consider slightly higher in comparison to the median figure for similarly rated peers. The rating also reflects: • A stable b ut fully built out service area eco no my supported by its participation in the M iam i- Fort Lauderdale-West Palm Beach met ropoli t an st atistical area, showcased by the moderate poverty rate and comparable incomes to t he nat ional figure. By function of its lack of substantia l growth prospects , any increases to o perating expenses at the utili ty leve l w ill be covered by existing c us tomers. We also no te the exposure t o the tourism ind ustry that may fluctuate depending on hurricanes or economic downturns. • Affordable water and wastewater rates that i nclude passthrough costs from M iam i-Dade Wate r a nd Sewer Department, together eq ualin g about 2% of ann ua l incomes in the area. However, the board may i ncrease rates more than annual consumer pric e index adjustments pend ing comp letion of a new rate study i n late 2025 . • Sufficient capacity to meet water a nd sewer collection system demand, buttressed by a focus on climate hardeni ng of i nfrastructu re given t he area 's geograph ic al susceptibility to sto r m surges and flood i ng. The utility's emergency management plans a nd part nerships with t he Army Corps of Engineers and surround ing mun ic ipali t ies ens ure proactive redundancies and consistent resiliency testi ng. Environmental, social, and governance In our opinion , there are he ightened enviro nmental ri sk facto rs g iven Mi am i-Dade County is l ocated on t he east coast of Flo r ida wi th exposure to more sign i fican t sto rm events and hurricanes . Management has indicated it has made upgrades to harden structu res t o wi thstand storm events and h as emergency outfalls , backup generators, and interties with nei ghbori ng ut i lities. In addition , some reg ulatory risk is transferred to the county as it treats the water a nd sewer effluent. Social risk factors r isks may become press ured as affor dabi li ty is challenged by p lanned rate increases bo th at the utility and county who lesale provider. Governance r isk factors are in line w ith those of peers; ma nagement has transparent reporti ng , codified f iscal polic ies , and autonomous rate setti ng that have s upported robust f inancial met r ics. Outlook Th e stable outlook re f lects our expectation that the ut il ity's rate setting practices will support robust cov erage and maintai n strong liqu idity levels while addressing capital improve ment projects re lated to rep lacement, rehabi litati on, and cli m ate hardening. www.spglobal.com/ratingsdirect October 6 , 2025 2 Miami Beach , FL Water And Sewer Revenue Bonds Upgraded To 'AA' On Robust Coverage, Liquid ity Growth ; Outlook Stable Downside scenario We co u ld lower t he ratin g if add itio na l d ebt n ee ds o r a su st a ined spenddown in t h e ut i li t y's un res t r ic ted ca sh occ u rs t o f u nd it s cap ita l p la n , p lac i ng pre ssu r e on th e sys te m's f inanc ial m et r ic s in u pc om ing years . In ad dition, if t he co u nty's capi ta l c osts in flu e nce t h e ci t y sys te m 's fi na nc ia l c apac ity by stress in g all-in DSC, we co u ld t ake a negat ive rating ac t io n. Upside scenario A higher rating would b e pred ic ated on sign ifica nt f inan c ia l o utperfor ma nce, ve rsu s historical l evels a nd more regu la r fina n cial plann ing , wh i le sti ll address ing capita l needs and affo r dabi l ity con ce rns . Miami Beach, Florida--economic and financial data Fiscal year-end Most recent 2024 2023 2022 Median (AA) Economic data MH HEB I of th e service area as% of the U.S. 90.0 110 .0 Un employment rate (%) 2.1 3.6 Poverty rate (%) 14.1 10 .0 Wa t er rate (6 ,000 gallons or ac tu al) ($) 30.1 36 .5 Sewer rate (6 ,0 00 gallons or actua l) (S) 75.5 41.0 Annual ut ility bill as% of M HHEBI 2.1 1.1 Operationa l mana gement assessme nt Good Go od Financial data Total operat ing reve nues ($00 0s) 110 ,768 10 3,953 96,756 24,28 6 To tal ope rating expe nses less dep rec iatio n ($000s) 86 ,097 74 ,833 63 ,393 17,090 Net reve nues ava ilab le fo r debt servic e ($000s) 32 ,4 85 35,337 34,846 Debt service ($00 0s ) 11,1 86 11,146 11,724 S&P Globa l Ratings -adj usted all -in DSC (x) 1.6 1.7 1.7 2.2 Unrestrict ed cash ($000s) 104 ,087 89 ,687 80,958 24,667 Days ' cash of op erating expe nses 441 437 466 631 Total o n-b alanc e-sheet debt ($000s) 146 ,500 152 ,62 1 158 ,634 39 ,844 Debt -t o-cap itali zation rat io (%) 30 .0 32.1 34.7 27.0 Fin an ci al mana gemen t as sess men t Good Go od Note: Most recent econom ic dat a ava il able from ou r vendo rs . MHHE BI--Med ian house hold effective buying inco me . DSC-- Debt se rvice coverage. Ratings List Upgraded;Outlook Action To From Water & Sewer M iam i Bea c h, FL Water and Sewer System AA/Stab le AA-/Pos iti ve The ratmgs appeanng below the new issues repre.serit a aggregation of debt ssues AS ID associated with relatec maturit es. "The matur•ties s1rn1larly ret'ect our opinion about the red1twortn ness of the U.S. Public e1nance obl1gor s legal pledge 'or payme, t of the fman ,al ob11gat1on. Nevertheless. these maturities may have www.spgloba l.com /ratingsd irect October6,2025 3 Miami Beach, FL Water And Sewer Revenue Bonds Upgraded To 'AA' On Robust Coverage, Liquidity Growth; Outlook Stable _,.iffprn t r ting, tt')c1 the r ting-r ;::, ,srt u nexl t 1 ;~lD c.J:; I 5 rn whether or r 01 p obl )-1 1 ion ucn al -redi enhanc Ament ns a re::.1J1 f jpf s n 1 t• er fdctors. 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