Fitch Ratings assigns an 'F1+' rating to New York City Municipal Water Finance Authority's $200 million extendible municipal commercial paper (CP) notes (series eight), expected to be issued beginning on September 3rd. The notes will be extendible municipal commercial paper with original maturities from 1-90 days from the original issue date of each note. The authority intends, but is not obligated, to pay principal on the original maturity date from proceeds of general resolution bonds (senior lien obligations) or second general resolution bonds (subordinate lien obligations). The authority, however, has the option to extend the maturity up to 270 days from the original issuance date in the event of a loss of market liquidity; accordingly, there will be no liquidity provider. The interest rate would be reset calculated at 135% of SIFMA plus a fixed percentage rate that is determined based on the CP rating at the time.
While the authority's Board (the board) has not yet authorized a resolution allowing for the issuance of long term first general resolution bonds or second general resolution bonds to take out the notes, Fitch notes that the authority could request authorization and issue long-term debt to refinance the notes well within the 180 day notification period.
The 'F1+' rating reflects the structure of the notes, which are considered bond anticipation notes under the second general resolution. Also underlying the rating is the credit quality of the first resolution revenue bonds or second general resolution bonds anticipated to be issued to ultimately fund the commercial paper notes, and the market access of such revenue bonds demonstrated in previous bond sales. Fitch rates the authority's first general resolution (FGR) and second general resolution (SGR) water and sewer system revenue bonds 'AA'. The underlying rating of the general resolution bonds reflects the unique structural protections for bondholders, sound financial operations, adequate water supply, and moderate rates. The rating also considers the enormous capital improvement program (CIP) needed to address the water, wastewater treatment, and infrastructure replacement needs of New York City's water and sewer system.
The notes provide funding for various capital improvement projects associated with the authority's $19.4 billion 10-year capital improvement program (CIP). Note interest is secured by moneys and investments in the FGR subordinated indebtedness fund, on parity with $800 million in outstanding commercial paper notes and $8.6 billion of outstanding second general resolution bonds. Note principal is also secured by moneys and investments in the FGR subordinated indebtedness fund, and ultimately the authority pledges the sale of first resolution bonds or second general resolution bonds to the payment of principal on the notes.
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