About

Press Release

Moody's upgrades CWA Authority, Inc. (IN) to Aa3 from A1; outlook stable

View All News & Events

September 4, 2019

Press Release

Moody's Investors Service ("Moody's") has assigned a Aa3 rating to the
CWA Authority, Inc.'s $40.5 million First Lien Wastewater Utility Revenue Bonds, Series 2019A (CWA Authority
Project) (Green Bonds). Concurrently, Moody's upgraded CWA's outstanding senior lien and subordinate lien
revenue bond ratings to Aa3 and A1, from A1 and A2, respectively. After the 2019A issuance, CWA Authority,
Inc. will have approximately $1.8 billion of debt outstanding. The outlook is stable.

RATINGS RATIONALE
CWA Authority, Inc.'s (CWA) senior lien upgrade to Aa3 from A1 reflects the utility's successful implementation
of rate increases to recover costs, pay debt service, and maintain a sound financial position until the federally
mandated consent decree is substantially completed in 2025. The Aa3 rating also contemplates the consent
decree capital plan, which is several months ahead of schedule and roughly $400 million under budget. CWA
is managed by Citizens Energy Group (Citizens) through a charitable trust structure, and serves Indianapolis -
Marion County, IN (Aaa stable). Rates are regulated by the Indiana Utility Regulatory Commission (IURC),
which is unusual for municipal utilities. Despite CWA's rate regulated status, the utility has been able to secure
approval for rate increases cumulatively amounting to just shy of 75% since 2014, demonstrating the IURC's
credit supportive actions concerning CWA's rate increase requests. The wastewater bond indenture is closed
loop, is isolated from any of Citizens' non-core business operations, and the bonds are secured by a fully
funded debt service reserve.

CWA's subordinate lien upgrade to A1 from A2 reflects the same dynamics that led to the senior lien upgrade,
however subordinate lien debt service payments are made after senior lien payments in the flow of funds and
the subordinate lien has a lower rate covenant.

RATING OUTLOOK
The outlook is stable given our expectation for steady debt service coverage levels around 1.5x, no need for
significant rate increase requests to complete the consent decree capital plan and for the consent decree
capital plan to remain ahead of schedule and below budget.

FACTORS THAT COULD LEAD TO AN UPGRADE
- Once the consent decree capital plan is completed
- Debt service coverage ratio consistently above 1.75x

FACTORS THAT COULD LEAD TO A DOWNGRADE
- Debt service coverage ratio consistently below 1.25x
- Major construction delays associated with the consent decree capital plan

LEGAL SECURITY
The wastewater bonds are secured by the net revenues of the wastewater system. The indenture provides for
a 1.20x on all First Lien Debt Service Requirement (with adjustments for rate stabilization transfers) or 1.0x on
all required First Lien deposits. The indenture provides for a 1.10x on Second Lien Debt Service Requirements
(with adjustments for rate stabilization) or 1.0x on all required Second Lien deposits. The debt service reserve
consists of the lesser of 10% of par amount of bonds, maximum annual debt service, or 125% of average
annual debt service.

USE OF PROCEEDS
Finance the costs of improvements and additions to the wastewater system and fund a debt service reserve
for the CWA Authority, Inc. 2019A bonds.

PROFILE
Citizens Energy Group (Citizens) is the trade name of the Department of Public Utilities of the City of
Indianapolis, Indiana (Department). The Department was formed in 1929 to provide the governance structure
for the City of Indianapolis to act as a successor trustee of a public charitable trust (Energy Trust) providing
natural gas utility services in the City of Indianapolis and to own and operate other utility systems serving areas
within and outside the City of Indianapolis.

Citizens operates: the Gas Utility & Distribution System, the Thermal Energy System, the Water System and
CWA. Each system has issued debt independently secured by pledged revenues of each system to a separate
dedicated trust. These separate trusts are designed to insulate one trust from liability for obligations for
another trust, so they do not become jointly liable solely because the same entity is the trust of both. Each
indenture permits Citizens or CWA, as applicable, authority to use residual revenues for other purposes
permitted by the language of the respective indenture. Citizens' water indenture and CWA's wastewater
indentures, however, permit only the use of the excess revenues for the water and wastewater systems,
respectively.

The wastewater system is owned by CWA, a separate nonprofit corporation, which, through an inter-local
agreement entered into between Citizens and the City of Indianapolis, has the power to exercise all rights and
powers of the City, except the City's taxing power, and Citizens in connection with the provision of wastewater
utility services. The Wastewater System is managed by employees of Citizens under an operating agreement
between Citizens and CWA.

METHODOLOGY
The principal methodology used in these ratings was US Municipal Utility Revenue Debt published in October
2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of debt or security this announcement provides certain
regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series,
category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this
announcement provides certain regulatory disclosures in relation to the credit rating action on the support
provider and in relation to each particular credit rating action for securities that derive their credit ratings from
the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be
assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a manner that would have affected the
rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related
rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures
for each credit rating.

Thomas Brigandi
Lead Analyst
Project Finance
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Kurt Krummenacker
Additional Contact
Project Finance
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653