Nashville water and sewer senior lien debt keeps AA rating with stable outlook
Nashville and Davidson County’s water and sewer system keeps its AA long-term rating with a stable outlook on its senior lien obligations. The affirmation covers refunding and improvement bonds as well as the U.S. Environmental Protection Agency WIFIA loan, underscoring continued support for the utility’s capital and operating plans.
Highlights
- Kroll Bond Rating Agency affirmed the AA rating with a stable outlook for Nashville water and sewer senior lien debt, citing consistent rate increases since fiscal 2020 and solid liquidity.
- The system’s strong credit profile is supported by ample cash flow, competitive rates, and positive service area demographics including the fast-growing City of Nashville.
- Elevated capital expenditure plans through 2032 present the main constraint, with significant borrowing needs that could increase leverage over the next five years and pressure the rating if costs rise or rates are not adjusted.
Credit profile backed by rates and liquidity
As reported by Kroll Bond Rating Agency, the rating affirmation reflects the utility’s position as an essential service provider with authority to set rates and a record of annual rate increases since fiscal 2020 to meet operating and capital needs.KBRA says the system’s financial performance remains strong, supported by financial and rate plans that provide ample cash flow, liquidity and debt service coverage. It also says rates remain competitive, preserving flexibility for future adjustments.
The agency also points to service area demographics as a credit strength. The county includes the fast-growing City of Nashville and benefits from above-average income and employment levels.
Capital demands remain the main constraint
The main credit challenge is the scale of the system’s capital plan through 2032, including the risk of unexpected cost increases. KBRA says significant borrowing needs tied to capital expenditure could push leverage higher over the next five years.For an upgrade, the agency says the system would need to make substantial progress on Consent Decree and ongoing capital requirements while keeping leverage moderate or lower and rates affordable. For a downgrade, KBRA says a material rise in Consent Decree or other capital program costs, or a failure to adjust rates in time to support operating and capital needs while maintaining moderate leverage, could pressure the rating.
Our earlier article on Fort Myers’ utility system revenue bond rating affirmation covered how the utility maintained an A+ rating with a Stable Outlook, supported by strong revenue defensibility, manageable leverage, and ongoing customer growth. We also highlighted the system’s sizable capital program and the role of rate increases in funding infrastructure needs while keeping bills broadly affordable.
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