Public Water and Wastewater Utilities - New York City Water Finance Authority Case Study - New York City Municipal Water Finance Authority - NYC.gov
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Croton Aqueduct
Public Water and Wastewater Utilities —
New York City Water Finance Authority Case Study
New York City Municipal Water Finance Authority
March 9, 2021Tripartite Operating and Governance Structure Creates an
Independent Water and Sewer System
The NYC Water Board owns System revenues and sets rates as required to fully fund all the debt service and
operating costs of the System
NYW issues bonds for the improvement of the System
NYC’s Department of Environmental Protection (DEP) operates the System. The City is reimbursed for
operating and maintenance expenses subordinate to debt service
The NYC Water Board and NYW are legally separate from the City
Leases System from the City Issues bonds to fund capital DEP manages capital
improvement program improvement program and
Sets rates and charges
operates and maintains the
Holds statutory and contractual
Owns System revenues System for the Water Board
first claim on gross revenues
Revenues deposited in “lock- Bills and collects revenue from
Has no System operating
box” customers for the Water Board
functions
1Capital Improvement Program Funding
Approximately 98% of the System’s capital projects costs are expected to be paid from bond proceeds and
System Revenues
$23.52 Billion
Capital Improvement Program
FY 2021-31
System Funds
$23.06 Billion
98%
State, Federal,
and Private Funds
$0.47 Billion
2%
2Mandated Projects in the Capital Improvement Program
Approximately 25% of the total program for FYs 2021 through FY 2031 is dedicated to regulatory mandated
projects
CIP ($ in billions) for FY 2021- FY 20311
$ (Billions)
Other Priority Project Funding
3.50
Total Mandates
3.00
35%
2.50 28%
33%
28%
39%
2.00 13%
18% 30%
9%
1.50
11% 11%
1.00
0.50
0.00
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
___________________________
1. Source: Aecom USA, Inc.
3Mandated Projects in the Historical Capital Budgets
Percentage of regulatory mandated project costs vary from year to year
During FYs 2008-2010 regulatory mandated project costs were very high as the System had to fund
Croton WFP, UV Facility and Newtown Creek WWTP upgrades
CIP ($ in billions) for FY 2008- FY 20201
($ Billions)
Other DEP Priority Projects Historical
4.00
Mandated Projects Historical
3.50
3.00
22%
2.50 48% 45% 18% 18%
73%
21%
21%
2.00 23% 30% 22% 23%
33%
1.50
1.00
0.50
0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
___________________________
1. Source: Aecom USA, Inc.
4$31.6 Billion Outstanding Debt Portfolio
Anticipated Future Bond Issuance1 Outstanding Debt by Interest Rate Mode3
Fiscal Issued to Issued $4.2 Billion $0.5 Billion
Year the Public to EFC 13% 2%
2021 $1,2192 $300
Fixed Rate
2022 1,495 300 Adjustable Rate
Index Rate Bonds
2023 1,429 300
$26.9 Billion
2024 1,501 300 85%
2025 1,704 300
Period Total $7,348 $1,500
Outstanding Debt Service by Resolution by Fiscal Year4
($MM)
$2,500
First Resolution Bonds
$2,000
Second Resolution Bonds
$1,500
$1,000
$500
$-
___________________________
1. As of September 2020, excluding refunding bonds.
2. To date during Fiscal Year 2021 the Authority has issued $585.3 million of Second Resolution Bonds, not including refunding bonds.
3. Includes $553.26 million of Fiscal 2021 Series CC Bonds expected to be issued on March 18, 2021; excludes bonds expected to be refunded by Fiscal 2021 Series CC Bonds.
4. FY 2021 includes amounts remaining to be paid by the Authority as of the date of the Fiscal 2021 Series CC Official Statement.
5Municipals – One of the Largest Fixed Income Asset Classes
Muni market is $3.9 trillion in size and is the fourth largest asset class in the U.S.
Primary holders of muni bonds are retail investors: “households” which includes money invested through
Separately Managed Accounts (“SMAs”) as professional retail, and traditional “mom & pop” retail
Outstanding ($ Trillion) Holders of Muni Bonds
($ Trillions)
16 Other
4%
14
12 Insurance
Companies
10 12%
8 Banking
Institutions Households
6 12% 45%
4
Mutual
2 Funds
27%
0
___________________________
Source: SIFMA as of 1/04/21.
6Types of Municipal Bonds
General Obligation (“GO”) Bonds are secured by a Revenue Bonds are payable from a specific stream of
pledge of the issuer’s full faith, credit and taxing revenues, such as a user fee, loans, or dedicated tax,
power. The “full faith and credit” backing of a General and are not backed by the full faith and credit of the
Obligation bond implies that all sources of revenue, issuer. They are issued to finance specific enterprises or
unless specifically excluded, will be available to pay projects and are usually secured solely by revenues
debt service on the bonds. from those projects.
Examples: State of California, City of New York Examples: Port Authority of NY / NJ, Bay Area Toll
Authority, New York City Municipal Water Finance
Authority
Revenue and GO Bond Issuance (1996-2020, $ Billion)
($ Billions)
500
450
400
350
300
250
200
150
100
50
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GO Revenue
___________________________
Source: SIFMA as of 1/19/2021.
7Credit Considerations
• Metrics: Unemployment rate, personal income growth and personal income
Macro Economy • Diversification of economic base: Major employers and employment
Supporting Repayment distribution
• Demand/growth: Service area, usage trends and competitive pressure
• Metrics: Budget forecasts, reserve balance, revenue and expenditure growth
Finance
• Borrowing for operations? (Other than short-term notes used for cash flow
timing differences)
• Pledged revenues: Gross vs. net pledge
• Debt service reserve funds: e.g. Max annual debt service
Legal Covenants
• Additional bonds test: No new debt unless debt service coverage is sufficient
• Rate covenant: Pledge to increase rates if debt service coverage is not at
some minimum level
• GO: Debt / personal income, debt per capita (tax base) and debt service as
share of revenues
Debt Metrics • Revenue Bond: Debt service coverage ratio (pledged revenues/debt service)
• Debt structure: GO vs. revenue, fixed vs. variable rate, maturity schedule and
level debt service vs. growing debt service
• Budget and planning processes
Management/
Governance
• Legislative requirements to enact budget and raise income, either tax rates or
rates and charges
8Credit Themes Affecting Water and Sewer Utilities1
Outlook for the municipal water and sewer utility sector remains stable despite the effects of the pandemic
Utilities will continue to benefit from stable, largely residential customer bases
Some utilities are likely to delay capital projects in 2021 in order to manage cash flow issues
Rising Debt Environmental Social
Burdens Impact Trends
Declines in nonresidential Risks from rising Affordability for
consumption, increased temperatures and more ratepayers remains a
payment delinquencies frequent severe weather social risk
and reduced rate increases events have the potential
to weaken credit quality in Existing rates are still low
will decrease debt service
the long term for many systems to
coverage
generate enough revenue
Strategic refunding of Governance will be key to to cover operating
debt amid low interest managing water resources maintenance and debt
rates will support strong in drought-prone regions service expenses
debt service coverage and protecting systems
from sea-level rise
___________________________
1. Source: Moody’s Municipal Water and Sewer Utilities Outlook.
9Ratings
There are three major rating agencies for municipal bonds: Moody’s, S&P, and Fitch
Aaa/AAA/AAA is the highest investment grade ratings from all three rating agencies
New York City Municipal Water Finance Authority’s Second Resolution Bonds are rated Aa1/AA+/AA+ by
Moody’s, S&P, and Fitch
Moody’s Municipal Utility Scorecard
Factor Sub-factor Why it matters
Financial Strength (40%) Annual Debt Service Coverage (15%) Determines its flexibility to respond to
Days Cash on Hand (15%) contingencies, resilience against potential
Debt to Operating Revenues (10%) short-term shocks, and cushion against a
long-term unfavorable trend
System Characteristics (30%) Service Area Wealth (12.5%) Measures a utility’s capacity to fund its
Asset Condition (10%) operations and capital needs based on the
System Size (7.5%) health of its capital assets, size and diversity
of its operations, and the strength and
resources of its service base
Management (20%) Rate Management (10%) Refers to the dynamics of setting rates,
Regulatory Compliance and Capital planning for capital spending, budgeting
Planning (10%) for annual expenditures, and complying
with environmental regulations
Legal Provisions (10%) Rate Covenant (5%) Strong covenants bind the utility to utilize
Debt Service Reserve Requirement (5%) its assets to benefit bondholders by
operating with a comfortable financial
margin and maintaining adequate cash
available to pay debt service
10NYW Credit Highlights
Sole provider of essential services with no competitors
One billion gallons of quality water is provided every day to 8.3 million NYC
Essential Service Provider
residents and one million upstate New York residents, and sewer service is
provided to virtually the entire City and certain upstate communities
Independent rate setting mechanism and proven willingness to raise rates as
required (True-up)
Proven Rate-Setting Monthly debt service requirement is funded prior to operating and
Process and Robust Debt
maintenance (“O&M”) expenses (Gross Pledge)
Service Coverage
Debt Service coverage projected to be at or above 2.98x through 5-year
projection period
Tripartite operating and governance structure creates independent System
Bondholders benefit from the statutorily and contractually valid, binding, and
perfected priority lien on System revenues
Strong Legal Protections
Current law does not authorize either NYW or the Water Board to properly be
a debtor in a voluntary or involuntary case under the United States
bankruptcy code
$1.2 billion and $30.1 billion of First and Second Resolution debt outstanding,
Authority Debt and Capital respectively
Improvement Program
$23.1 billion System-funded Capital Improvement Program for FY 2021
through FY 2031
11Investors in NYW
Distribution by Investor Type($MMs)1 Top Reported NYW Holders ($MMs)2
Investor TE TE-RPI Total
Bank Trust/PWM, $1,800
SMA, $66,425 1 BlackRock 1,031.7 36.9 1,068.6
Prop/Trading, $2,500 2 Vanguard 635.7 22.0 657.7
Money Manager, $49,405 3 Nuveen 442.2 -- 442.2
Hedge Fund, $9,255 4 Franklin Templeton 404.7 -- 404.7
5 Invesco 390.4 0.7 391.1
Direct Retail, $5,360
Bond Fund, $415,515 6 Cap Research & Mgmt. 255.5 -- 255.5
Corporate, $3,000
7 Wells Fargo Bank 234.6 0.1 234.7
8 JP Morgan Bank (CIO) 164.7 0.1 164.8
9 Northern Trust 156.7 -- 156.7
10 HIMCO 141.6 -- 141.6
Distribution by Size of Purchase1 11 Prudential 132.2 0.1 132.3
$5,001,000 to 12 T. Rowe Price 111.6 0.4 112.0
$10,000,000, 5.71% $10,001,000 and
over, 14.29% 13 State Farm 108.0 -- 108.0
$1,001,000 to
$25,000 and 14 State Street 73.9 32.0 106.0
under, 4.76%
$5,000,000, 33.33%
$26,000 to 15 Alliance Bernstein 99.5 1.0 100.5
$50,000, 3.81%
16 Deutsche Bank 91.5 -- 91.5
$51,000 to
$100,000, 5.71% 17 MacKay Shields 84.2 -- 84.2
$501,000 to
$1,000,000, 8.57%
18 BNY Mellon 81.1 -- 81.1
$101,000 to 19 Eaton Vance 80.5 0.4 80.9
$251,000 to $250,000,
$500,000, 11.43% 12.38% 20 Fidelity 71.6 0.1 71.8
___________________________ Total 4,792.0 93.9 4,885.9
1. Allotments shown from Fiscal 2021 Series CC deal. Total of 553.26 million allotments.
2. Source: Bloomberg publically reported holdings as of February 18, 2021.
12Environmental Regulations and Capital Projects Spending Impact on NYW
Capital Projects Regulatory Impacts on NYW
NYW currently has multiple capital projects that require
1989 – EPA implements surface water treatment rule
substantial funding
Hillview Reservoir Improvements 1998 – Signing of Watershed Memorandum of Agreement
Kensico-Eastview Connection
2005 – New stricter regulations on surface water treatment
Croton Filtration Project
Water Tunnel 3 2008 – Enhanced drinking water treatment regulations
Stage 2 is still under construction, the Manhattan Future Considerations
segment was completed in October 2013 2021 – Proposed reform of the Lead and Copper Rule
Remaining cost of Stage 2 is expected to be $738mm
Historical Debt Issuance and Debt Outstanding by Fiscal Year1,2
($000s) Watershed Memorandum Manhattan Water New Drinking Water Kensico-Eastview
bps
5,000,000 of Agreement Tunnel 3 Construction Treatment Regulations Connection Announced 80
4,000,000 60
3,000,000
40
2,000,000
1,000,000 20
0 0
($000s) 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021
Amount Issued Approx. 30-Yr Spread
40,000,000
30,000,000
20,000,000
10,000,000
0
1994 1997 2000 2003 2006 2009 2012 2015 2018 2021
Debt Outstanding
___________________________
1. Source: New York City Municipal Water Finance Authority Official Statements from FY 1994-2021.
2. Approximate spread is calculated spread on 30 year, 5% coupon term bond issued in respective fiscal year. Prior to FY 2001 30 year, 5.5% coupons term bonds were used for approximate spread.
13Water Rate Increases Moderated in Recent Years
Flat-Rate/Metered Water Rate Increases in NYC by Fiscal Year
14%
12%
10%
8%
6% 12.9% 12.9%
4% 7.5% 7.0%
5.6%
2% 3.4% 3.0% 0.0% 0.0% 2.4% 2.3% 0.0%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Water Rate Increase
Comparative Annual Water and Sewer User Charges for Single Family Residential Customers1
$
3,000
2,500
2,000
1,500
$967
1,000
500
0
FY 2020 New York City Charge Average of 30 Cities' 2020 Charges
___________________________
1. Source: Amawalk Consulting. All estimates based on consumption of 70,000 gallons per year. Based on rate schedules in effect on February 2020.
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