Credit Rating for Separate-Lien Electric Utility System Revenue Bonds
A bond credit rating is a “grade” assigned by private independent rating services (Moody’s, Standard & Poor’s, and Fitch) that indicates the bonds' credit quality. Austin Energy (AE) receives credit ratings for its electric utility system revenue bonds. The ratings are the result of evaluations done by the rating agencies that measure an entity’s ability to repay principal and interest on debt issued. The performance of the local economy, strength of financial and administrative management, and various debt ratios are all considered when assigning a rating to an entity. The rating indicating the highest credit-quality investment grade bonds is “AAA”, and the lowest grade is “C”, also known as “junk.” Investors utilize these ratings when deciding whether to purchase AE’s bonds issued by the City of Austin. The higher the bond rating, the lower the risk is to the investor, which results in a lower cost of borrowing for Austin Energy.
This rating is directly assigned by the bond ratings agencies.
FY 2015-16 Results
Austin Energy did not sell bonds in the market during FY 2015-16 and thus did not go through a ratings review. The FY 2015-16 rating is a carry-over from the FY 2014-15 assigned rating and is based upon Standard & Poor’s rating through September 30, 2016.
Assessment of Results
Though AE did not sell bonds in the financial market in FY 2015-16 and thus did not receive a new rating, they did go through a cost of service study and rate review, which was approved by Council in August 2016. This will allow AE to strengthen its financial position and enable it to keep or improve the credit rating in the future. Austin Energy’s long-term credit rating target is AA.
Austin Energy met with the private independent rating services (Moody’s, Standard & Poor’s, and Fitch) in early FY 2016-17 to sell bonds in the financial market and received an upgraded credit rating of AA stable from Standard & Poor’s. This is an improvement of one grade from the AA- stable rating previously received. The rating service cited “the electric system’s very strong financial performance trend as evidenced by its ability to maintain stronger fixed-charge coverage and total available liquidity levels.” This includes the City Council’s ability to set base rates along with a strong performance by AE of increasing reserves, cash-on-hand and working capital to make system improvements. The improved ratings will result in more favorable interest rates when AE borrows money to improve infrastructure. This will save money for customers and allow AE to continue to build on strengthening its financial position in the next fiscal year and beyond.
For more information, contact Mark Dombroski, Deputy General Manager, Finance and Corporate Services, at (512) 322-6148.