Fitch upgrades Surprise bond rating to A+

February 3, 2017 GMT

Fitch Ratings, one of the “Big Three” nationally recognized credit rating agencies, has upgraded the city’s Municipal Property Corporation bonds to ‘A+’ from ‘A’.

These bonds, which total $35.7 million, were issued for the South Wastewater Treatment Plant expansion, which doubled citywide treatment capacity to nearly 18 million gallons per day (mgd). Fitch believes this is ample capacity to meet future growth needs. In 2016, the plant treated an average of 8.4 mgd.

In determining the upgrade, Fitch credits affordable system user fees, which “register just 0.4 percent of median household income.” Fitch maintains a 1 percent MHI affordability threshold.

Wastewater system user fees were last increased in Fiscal Year 2010 and management does not foresee any wastewater rate adjustments for the next five years. Net revenues are expected to continue to support debt service on the series 2007 bonds.

Fitch also championed prudent financial management in which the city pays an annual prepayment principle in lieu of waiting for the large bullet payments that are due in fiscal years 2022 and 2032.

“From fiscal year 2015 to 2017, the system made over $10 million in pre-payments towards the series 2007 MPC bonds outstanding balance. The payments included pre-payment of the $6.5 million 2017 bullet maturity and reductions to the 2022 maturity,” noted Fitch.

A city’s credit rating is important due to its impact on interest rates in the bond market. A better rating means the city can sell bonds to finance capital projects and pay a lower interest rate to the buyer.

The agency also issued a rating outlook of stable.

Virginia Mungovan is a public information officer for the City of Surprise