Stock quotes and Markets | Financial site

Rpt fitch rates indiana finance authoritys first lien wastewater revs a

(Repeat for additional subscirbers)June 3 (The following statement was released by the rating agency)Fitch Ratings has assigned an 'A' rating to the following Indiana Finance Authority (IFA) bonds on behalf of Citizens Authority (CWA):--$237 million first-lien wastewater utility revenue bonds, series 2014A (CWA Authority Project). The series 2014A bonds are expected to sell via negotiation during the week of June 9, 2014. Bond proceeds will be used by CWA to fund capital improvements to the system. A portion of the proceeds will also be used to repay a draw made on a line of credit (for capital projects), to fund a debt service reserve and pay costs of issuance. The Rating Outlook is Stable. SECURITY The Indiana Finance Authority's (IFA) series 2014A first-lien bonds are secured by Citizen's Authority (CWA) series 2014A first-lien wastewater revenue bonds, which are senior lien obligations of the wastewater system (the system), payable from a senior lien on system net revenues. KEY RATING DRIVERS SUBSTANTIAL CAPITAL REQUIREMENTS: CWA's approximately $1.1 billion capital program is driven by regulatory requirements and relies on significant annual debt issuance over the next five years. As a result, debt will continue to increase well above already high levels. SOUND FINANCIAL COVERAGE: The system generates solid coverage of all debt service, consistent with Fitch's 'A' category median for utility credits. STABLE REGULATORY ENVIRONMENT EXPECTED: The regulatory oversight by the Indiana Utility Regulatory Commission (IURC) creates a level of uncertainty for the CWA's financial profile. However, recent legislation and an expedited filing process for certain petitions, including rate adjustments, should bring stability to the regulatory environment. LIMITED RATE AFFORDABILITY: Continued above-average rate increases will result in rate pressure, with the average monthly wastewater utility bill currently at Fitch's affordability threshold of 1% of median household income (MHI). However, user charges are currently comparable to other large systems near the region.

FAVORABLE SERVICE TERITORY: The city of Indianapolis (the city) has a large and well-diversified economy. The consistent steady gains in employment bolster the system's ratepayer base. RATING SENSITIVITIES MEETING PROJECTIONS; RATE HIKES ESSENTIAL: The 'A' rating reflects Fitch's expectation that the system will meet projected operating results and debt service coverage levels. Management's ability to achieve timely implementation of rate hikes to sustain solid financial margins and required capital funding is key to rating stability. ESCALATION IN CAPITAL NEEDS: Fitch expects debt levels to stabilize following completion of the sizeable current capital program. Increases to the current size and scope of the capital program would be viewed negatively. CREDIT PROFILE CWA acquired the system on Aug. 26, 2011, assuming most assets and certain liabilities of the city's sanitary district. The system is largely a retail provider of sanitary sewer service to nearly the entire consolidated city (Indianapolis-Marion County). The system has approximately 225,000 customer accounts, including seven wholesale customers.

SIGNIFICANT CAPITAL NEEDS DRIVEN BY CONSENT DECREE The current five-year CIP covers fiscal 2014-2018 and totals approximately $1.1 billion. The system's substantial capital costs are driven by a consent decree (CD) requiring CWA to implement a Combined Sewer Overflow (CSO)-Long-Term Control Plan (LTCP) by 2025. CSO project costs included in the CIP total approximately $670 million during the next five years and account for roughly 63% of plan spending. The necessary CSO-LTCP projects include the construction of several deep underground tunnels and storage facilities designed to capture 95%-97% of wet weather CSO and result in no more than two to four overflow events per typical year. Prior to the acquisition, the city had a history of proactively implementing a CSO-LTCP. Upon assuming the city's obligation under the CD, CWA has continued to aggressively implement the LTCP, which Fitch views positively. CWA is currently in full compliance with the CD, according to the most recent six-month status report, dated April 11, 2014. Other projects in the current CIP include general system improvements and expansions (27% of spending) and septic tank elimination efforts (10% of spending). Approximately 84% of the current CIP is expected to be funded with bond proceeds (including series 2014A). The remaining amount will be funded by pay-go. Over the next four years, CWA plans to annually issue first-lien system bonds ranging between $149 million-$178 million each year. The significant debt is expected to be supported by a combination of annual base rate increases, through the standard IURC filings, and the Environmental Compliance Plan (ECP) recovery mechanism. The ECP is a new expedited rate-raising process to recover debt service costs associated with the CD. The system's debt ratios are very high with debt per customer, after the series 2014A issuance, at $6,252, and debt per capita at $1,503, far exceeding Fitch's 'A' rating category median levels. Debt ratios are expected to continue to increase in the foreseeable future as CWA plans to fund its significant CIP with bonds. However, management believes that the level of pay-go will be increased steadily with the goal of attaining 100% pay-go by the scheduled end of the CD in 2025. Fitch expects debt levels will remain significant for several years as principal payout is slow with only 56% of outstanding principal amortizing in 20 years. SOLID DEBT SERVICE COVERAGE LEVELS The system's audited financial results are sound, generating 2.5x and 1.91x senior lien debt service coverage (DSC) for fiscal years 2012 and 2013, respectively. All-in DSC of 1.85x for fiscal 2012 and 1.48x for fiscal 2013 are also respectable and consistent with the system's performance prior to the acquisition. However, liquidity metrics for the system are mixed with over 300 days cash on hand in fiscal 2013 but relatively low free cash-to-depreciation at 57% compared to 'A' rated category medians.

CWA projects significant revenue growth over the next five years resulting from annual rate increases. Expenditures are expected to remain stable. While there is significant planned debt issuance over the next five years, management targets to maintain senior lien DSC above 1.8x. All-in DSC is projected to range between 1.45x-1.67x. However, the ability of system users to absorb significant annual rate increases over the next several years will be important to achieving projected DSC levels. IMPROVED IURC ENVIRONMENT The IURC maintains jurisdiction over the approval of rates and charges of the system. In the past, the IURC's oversight has hindered timely rate increases for certain other utility systems. However, in 2013, the Indiana Legislature passed Senate Bill 560, which helps to mitigate the effects of regulatory lag by requiring that rate cases take no longer than 300 days. Failure to act within the 300-day time frame will result in 50% of the rate request becoming effective immediately, subject to refund if the final order authorizes less than the 50%. The IURC has indicated its desire to finalize all rate cases within the 300-day requirement. The IURC formally approved the details and the procedures of the ECP recovery mechanism on June 14, 2012, which can be applied on CD projects beginning in 2014. This tool is designed to timely recover debt service, debt service reserve funds, costs of issuance related to CD costs. In addition, in February 2014, utility systems received the authorization (under Indiana House Bill 1132) to petition the IURC for adjustments of basic rates for certain capital costs including wastewater system replacements and upgrades. While over half of the system's projected rate increase requirements can occur through the recovery mechanism, thus alleviating some of the risks related to timely rate increases, system rate affordability remains a concern. FUTURE PLANNED RATE HIKES MAY LIMIT AFFORDABILITY Wastewater user charges, based on approximately 7,500 gallons (Fitch's assumption for U.S. average household consumption), are 1.4% of MHI. This measure is well above Fitch's affordability threshold of 1% and is expected to increase to 1.5%, as the wastewater rates are set to rise in October. On a combined basis, water and wastewater user charges are over 2% of MHI. Current user charges, based on the single-system's actual average consumption of approximately 4,500 gallons, are somewhat more affordable at $35.9 per month or just 1% of MHI. On a combined basis, rates reflecting average water and wastewater usage total $65.8 and are 1.8% of MHI, approaching Fitch's affordability threshold. CWA maintains that its rates are in line with other systems in the region. CWA plans to increase rates annually either through general rate hikes or the ECP recovery mechanism. Fitch expects such rate hikes to be sizeable given debt needs. CWA expects to file its next rate case in early 2015 to have new rates for fiscal year 2016 and 2017. LARGE AND DIVERSE SERVICE AREA The city's economy is well-diversified and serves as the economic engine for the surrounding area. The city has a large retail sector as well as a significant manufacturing presence, which includes pharmaceuticals and automotives. The city's economy also includes health services, life and sciences companies and other business and professional service companies. The city's unemployment rate of 6.2% in March 2014 was down from the March 2013 rate of 8.3% and is comparable to the unemployment rate of the state (6.2%) and the nation (6.8%). MHI levels in the county are 11% and 18% lower than state and national levels, respectively.

Rpt lpc sponsors force aggressive terms in europes lev loan market

(Adds topic codes)By Claire RuckinLONDON Nov 10 European leveraged loans are becoming increasingly aggressive as sponsors push for looser bond style documentation on deals, unwelcomed but accepted by cash-rich investors desperate to keep money at play amid diminishing supply. While covenant-lite is a well established feature of Europe's leveraged loan market, other elements of bond documentation are now migrating across. Portability, freebie baskets and greater ability to take dividends and make acquisitions are all now regularly appearing in Europe. While they first made an appearance in the US loan market and slowly cropped up on cross-border deals and large European loans earlier in the year, much has filtered down to loans of a smaller size and scope."The erosion of document protection originally appeared on very large transatlantic deals and is now increasingly being seen on sole European deals, of late migrating from the larger to the smaller ones. Most investors think it is inappropriate but the competitive dynamic is such that it is sneaking through," a syndicate head said. Recent financings for deals including Education publisher Inifitas, Spanish telecoms company Ufinet, German HR software firm Personal & Informatik and Finnish paper and packaging group Powerflute were highlighted as aggressive smaller deals by investors. One of the most hard-lined measures being pushed through by sponsors is the ability to add an extra turn of leverage as soon as a deal is closed, without having to show things like improved performance or deleveraging.

While all these features are being seen more regularly on increasingly smaller deal sizes, sponsors are demanding more each time."In all of the deals the basket are being stretched, and each time they are being stretched a little bit more," a banker said. Sponsors are also getting more freedom on some deals, with majority consent dropping to 50.1% as opposed to the two-thirds traditionally seen in Europe's leveraged loan market. The aggressive terms are difficult for investors to digest, especially as they are being offered in conjunction with higher leverage and tighter pricing.

Senior levels of leverage regularly hit 5.0-5.5 times and bankers are working on deals with total leverage of 6.5-7.0 times. A pricing squeeze means margins, floors and OIDs are unable to compensate for the higher risk, given the flood of cheap money available from new CLOs, credit funds and growing bank appetite for term loans."This is very reminiscent of 2006-2007. Any aggressive doc feature in isolation is not reason enough to turn down a deal but together with high leverage and low pricing is hard. It is a borrowers market right now," an investor said.

TROUBLE AHEAD A lot of the aggressive features are appearing on European deals of varying sizes, irrespective of credit quality. They are being pushed through by sponsors facilitated by lawyers and accepted by bankers desperate for fees. There has been an erosion of credit story as banks and investors battle for deal flow. Loans are being negotiated on the basis of precedent, without looking at what is appropriate for each individual credit, a banker said."Based on docs, leverage and pricing you would think you are about to do a US$2bn solid, liquid loan but in reality it is a tiny, illiquid European deal," the syndicate head said."The most aggressive terms are being cherry picked from the largest US deals which are being pushed onto European banks and investors that don't have the discipline to pushback. Consequently you are getting some deals done with inappropriate terms."Some deals have experienced some pushback, albeit pretty minor. A 240m term loan B for Powerflute closed on November 8 at 500bp, with a 0% floor, the wider end of 475bp-500bp guidance. Prior to close, the OID widened to 98.5 from 99, 101 soft call was extended to 12 months from six months and there were a number of "lender friendly changes to the covenant package." Nevertheless, the loan still allocated and remained covenant-lite.