Rating Action: Moody's assigns initial Aa3 to Sand Springs Municipal Authority, OK's Series 2020 Utility Revenue Bonds

Global Credit Research - 06 Aug 2020

Aa3 issuer rating assigned to City of Sand Springs, OK

New York, August 06, 2020 -- Moody's Investors Service has assigned an initial Aa3 rating to Sand Springs Municipal Authority, OK's $26 million Utility System Revenue Bonds, Refunding Series 2020. Moody's has also assigned a Aa3 issuer rating to the City of Sand Springs, OK.

RATINGS RATIONALE

The initial Aa3 utility revenue rating is based on the authority's ample liquidity and the strong senior lien debt service coverage provided by the pledged revenues (net utility and sales tax revenue), though there is a significant amount of subordinate lien debt also supported by the pledged revenues. The rating also considers the water and sewer system's strong asset condition, though the small size of the system is a negative factor. The authority has covenanted to maintain utility rates at a level that will sustain 1.25x debt service coverage, however there is no requirement for a debt service reserve fund. Governance was a key rating driver of this initial rating considering management's proactive budgetary management resulting in healthy liquidity and financial performance.

The Aa3 issuer rating assigned to the City of Sand Springs is based on the city's moderately sized and gradually growing tax base located immediately to the west of Tulsa, with income levels just slightly below the national median. The city's healthy finances that have remained stable relative to revenues in recent years are a supporting factor for the rating. The city's debt burden is slightly elevated compared to national peers, though it should remain manageable due to a lack of additional debt plans. The city's manageable unfunded pension liability is also a positive factor. The issuer rating is equivalent to a rating that we would assign to a typical General Obligation Unlimited Tax (GOULT) debt issue and is used as a reference rating for the authority's municipal utility rating. Governance was a key rating driver of this initial rating considering management's proactive budgetary management resulting in maintenance of stable financial performance.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Sand Springs Municipal Authority and the City of Sand Springs are not susceptible to immediate material credit risks related to coronavirus due to the stable nature of utility revenues, the city's rising sales tax collections despite the crisis, and minimal costs incurred. The longer term impact will depend on both the severity and duration of the crisis. The situation surrounding coronavirus is rapidly evolving. If our view of the credit quality of the authority or city changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

Moody's does not generally assign outlooks to local government issuers with this amount of debt outstanding.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Growth in system size as assessed by operational expenditure (revenue rating)

- Improved resident income levels (revenue rating)

- Significant increase in the tax base (issuer rating)

- Reduction in the debt burden (issuer rating)

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Increased senior lien indebtedness that reduced coverage and boosted leverage (revenue rating)

- Sustained reduction in liquidity (revenue rating)

- Substantial draws on reserves, especially if caused by an operational imbalance (issuer rating)

- Declines in the tax base or other signs of economic distress (issuer rating)

LEGAL SECURITY

The bonds are secured by the net revenues of the authority's water and wastewater system, inclusive of a 1% sales tax levied within the City of Sand Springs for the exclusive benefit of the authority's water and wastewater system. The Oklahoma Constitution requires any funds of the city such as the sales tax revenues to be appropriated on an annual basis, however the tax revenues are only legally authorized to be levied for the benefit of the authority.

USE OF PROCEEDS

Bond proceeds will be used to refund previously issued debt to achieve a projected $4.7 million net present value savings on debt service.

PROFILE

Sand Springs Municipal Authority is a public trust created in 1966 for the benefit of the City of Sand Springs, OK. The authority operates and constructs the city's utility system and various other enterprises. Sand Springs is a suburb of Tulsa with a growing population estimated at 20,527 as of 2019.

METHODOLOGY

The principal methodology used in the issuer rating was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. The principal methodology used in the revenue rating 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 these methodologies.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Alexander Rawlings Lead Analyst Regional PFG Dallas Moody's Investors Service, Inc. Plaza Of The Americas 600 North Pearl St. Suite 2165 Dallas 75201 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Adebola Kushimo Additional Contact Regional PFG Dallas 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

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