PubFinCriteria_2006_part1_final1.qxp

mitigated is factored into the analysis. For example,

if the revenue stream depends heavily on a second-

ary revenue stream, such as energy revenues, the

risk of lower energy sales and the impact on house-

hold cost are evaluated. The steps that an issuer

takes to mitigate as many of it’s revenue generation

risks, that ultimately lessen the financial impact on

household cost, the stronger the rating.

Additionally, Standard & Poor’s will focus on

whether a system is in compliance with its EPA

mandated post closure costs, such as is manage-

ment setting aside sufficient funds to meet this

future liability fully, and if not what plan does man-

agement have to eventually meet this liability. When

calculating annual debt service coverage the operat-

ing expense labeled provision for post closure cost

will not be included in determining total operating

expenses, thereby insuring that debt service cover-

age will not be adversely affected by the decision to

annual fund the post closure cost liability.

Management Assessment

An assessment of management’s ability to adapt

and respond within the business environment and

consider strategies for ensuring waste flow and rev-

enue streams is undertaken. One of the most critical

aspect is to determine whether the management

team is proactive or reactive. Standard & Poor’s

focuses on who ultimately makes the key decisions

(an elected versus appointed governing body), such

as when and how much to increase rates, what the

additional debt plans will be, and what policies are

to be adopted. More importantly what has been the

history of making timely and effective decisions.

An independent consulting engineer’s report, his-

torical operating records and a meeting with man-

agement provide information to evaluate

management’s ability to construct and operate the

facilities. If a private operator is contracted to run

the system or facility, Standard & Poor’s focuses on

what the incentives there are for that operator to

provide efficient operations. In all cases, an equi-

table agreement for both parties and termination

clauses for nonperformance are necessary.

Long Range Planning

Policies focusing on short-and medium-term issues

may be implemented with some success, but they

are likely to prove insufficient without some focus

on relating the system’s current status to its long-

term needs. True operational stability assumes that

a system’s current and likely future needs have been

measured and are relatively known.

The average increase in rates to be targeted

over the next decade cannot be known without

some idea of the cost pressures a utility may face,

and without an honest effort to estimate these

needs, it will be extremely difficult to educate and

inform ratepayers. Cost pressures to be estimated

include those for operations, replacement, regula-

tory compliance, and accommodating additional

growth. The nature of these cost increases should

be considered, that is, whether they are ongoing

or likely to be diminished over time, along with

their magnitude.

Many utility officials cite the impossibility of cor-

rectly estimating future economic development

Solid Waste System Financings

http://www.standardandpoors.com 129

The following materials should be submitted in conjunction with a rating request.

Financial Information

■Three years of audited financial reports (if available)

■Current year’s budget

Legal Information

■Bond resolution or trust indenture

■Enabling legislation

■Disposal and transportation contracts

■Solid waste management plan

System Information

■Engineer’s report or feasibility study, if available

■Anticipated capital improvement plan

■Three to five years of historical and projected rates, with locally

targeted comparisons

■Three to five years of operating statistics (if applicable)

■Customer or hauler trends

■Waste-flow tonnage

■Per capita generation

■Recycling rates

Economic Information

■Population trends

■Income trends

■Composition of employment by sector

■Unemployment rates

■Largest employers in service area

■Tax base trends

■Building permit activity

■Sales tax trends

Additional Requirements For Project Financings

■Construction, electric sales, service, and operating contracts

■Site lease

■Vendor performance guarantee

■Project operating statistics (if applicable)

■Throughput

■Energy generation/revenue

■Capacity factor

Documentation Requirements