MA Water Resources Auth $285M Gen Revs Rtd A+Underlying.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 28, 2000

Fitch IBCA assigns its `A+' underlying rating to the Massachusetts Water Resources Authority's (MWRA) $285 million general revenue bonds, 2000 series A, expected to sell on or about February 8 through a syndicate led by

MWRA's capable management team continues to manage complex environmental infrastructure projects under court order at lower costs than expected. While the MWRA's water and wastewater treatment networks remain subject to regulatory and court decisions, including one now under litigation related to drinking water filtration, the MWRA clearly addressed its most expensive needs during the 1990s. Its largest project, the $3.6 billion Deer Island Wastewater Treatment Plant in Boston Harbor, is 98% complete, and the $637 million MetroWest Water Supply Tunnel is 50% finished.

Capital improvement program (CIP) costs from 2001-2010 are projected to focus slightly more on water system upgrades compared with the CIP since 1986, which targeted Boston Harbor and wastewater improvements by a nearly 6:1 margin. With 6.8% average annual rate increases between fiscal years 2001 and 2005, less than projected last year, senior lien coverage by net revenues is forecast to be 1.45x-1.58x annually through the period. Lower operating cost estimates and other factors have improved forecasts somewhat in recent years. Subordinate lien coverage is forecast in the 1.10x-1.15x range annually, slightly higher than the level required by bond covenants. In recent years, more favorable structuring of low-cost Massachusetts state revolving fund loans, lower interest rates, and shrewd use of variable-rate and swap instruments have allowed the MWRA to reduce costs passed on to ratepayers in member communities throughout eastern Massachusetts. At the end of 2000, variable-rate exposure is expected to equal an acceptable 17.6% of outstanding debt.

The costs of the MWRA's $2 billion 2001-2010 CIP are small compared with its $5 billion 1986-2000 effort. Nevertheless, the CIP remains among the highest per capita for comparable systems in the U.S., and MWRA charges are already among the highest in the urban U.S. - though more moderate when compared to actual usage patterns and the high average household income in the Boston area. Also, the MWRA remains somewhat dependent on annual aid contributions from the Commonwealth of Massachusetts (rated `AA-`) to moderate rates. MWRA financial forecasts assume state debt service aid, subject to annual appropriation, at 20% of eligible debt costs, which is consistent with recent practice. Operations remain under close scrutiny from the courts, federal and state environmental regulators, and other state and local officials. In his budget message, released Wednesday, Governor Cellucci proposed funding a study to consider privatization of MWRA operations.