years. The former approach adds more credit
strength. Substitution of cash-funded reserve by a
surety bond and/or LOC obtained from a credit-
worthy entity also is acceptable. If the reserve fund
is tapped to meet debt service payments, a reason-
able replenishment schedule should follow. Renewal
and replacement accounts and rate stabilization
fund accounts are also common, and provide addi-
tional financial cushion, but are not considered nec-
essary from a credit standpoint.
Typically, a system with stable operations and
strong financial margins can carry diminished debt
service reserve provisions, including the use of
springing covenants, without credit implications.
Alternatively, absence of fully funded reserve for
systems that generate thinner margins, exhibit asset
or customer base concentration, a shallow service
area economy, or cash flow constraints, the may
result in a lower rating.■Solid Waste System Financings ........................................................................................
http://www.standardandpoors.com 127Areas reviewed to reach a rating
determination include:
■Economic considerations;
■Financial data/capital improvement plan;
■Rate criteria;
■Operational characteristics;
■Management assessment; and
■Legal provisions.
Particular concerns related to solid waste man-
agement within different states are included in the
analysis of these factors. Generally, areas that could
differ from state to state are environmental laws,
the power to create franchises, the magnitude of
competing alternative disposal options, and lastly,
the level of government responsible for the imple-
menting of solid waste disposal plans. Those unique
features applicable to credit quality of individual
issuers will be reviewed on a case-by-case basis.
Economic Considerations
The economic assessment of the markets in which
the issuer operates will be discussed in this section.
The analysis will primarily consider waste flow
available within the service area, and the ability of
these flows to generate sufficient revenues to repay
debt, and also includes an analysis of historic and
projected waste flow trends. The characteristics
(commercially generated versus residential generat-
ed) of the waste flow will also be considered. In
addition, the service area economy and demograph-
ics will be scrutinized. Another key element of
waste flow availability and control relates to the
arrangements and relationships with waste haulers.
Consideration of the different types of arrange-
ments under which haulers and the system operate,
such as franchise agreements and contracts, among
others, are factored into the rating analysis.
The economic analysis will also examine the serv-
ice area, and how it is defined including considera-
tion of agreements and relationships with
participating municipal governments for the regional
or countywide systems. An adversarial or litigious
history with either haulers or with municipal govern-
ments will present greater market risk. Employment,
population trends, and wealth and income indices
are reviewed to establish the underlying economic
strength of the service area and its capacity to repay
the financing. Service demand (garbage flow) typical-
ly reflects the service area’s economic activity. From
the economic base analysis, Standard & Poor’s
Ratings Services can assess the waste stream service
demand. As a starting point, historical garbage dis-
posal alternatives, tonnage, and costs are reviewed.
Per capita disposal rates can be indicative of the
volatility of the waste flows and the effectiveness of
recycling and reduction programs.
A review of the area’s future disposal alterna-
tives and reliability of facilities is performed.
Competition from alternatives (versus control of
the waste stream) is assessed to understand ton-
nage projections. The capacity of all available facil-
ities on an annual and lifetime basis is then
compared with the forecasted service area demand.
If surplus capacity exists, an analysis is performed
of the additional costs and exposure inherent in
carrying that excess. If the facilities are inadequate
to handle current or projected service area
demand, the evaluation includes the cost of financ-
ing additional facilities.Rating Criteria
The rating criteria includes a review of the system’s
cost structure with a primary focus on current and
projected tipping fees relative to alternative or com-
peting facilities. The proximity of competing facili-