Debt Financing

Debt Management

Priortothe1990s,theDistrict’spolicywastofundcapitalimprovementsfromuserfees.Havinginheritedaging collectorlines,someinexcessof100yearsold,thispolicy forcedtheDistricttoincreaseratesdramaticallyyet neverprovidedenoughfundingtokeepupwiththemagnitudeofdesperatelyneededrepairs.Comingtorealize the benefit of integrating capital-planning and debt-financing activities, the District Board developed a longrangeplan to utilizebondsandpay-as-you-goin acoordinatedcapital improvement plan.

This combined strategy allows for more equity between long-term and new ratepayers while providing the necessary funding for an adequately functioning system. Issuing debt provides the capital to rehabilitate crumbling infrastructure while allowing present and future ratepayers who will enjoy the benefit to share the cost through annual principal and interest payments. This contrasts with a strategy that uses only pay-as-yougo whereby a resident will pay higher rates for many years to accumulate the funds needed for rehabilitation beforeenjoyingany benefit,yetnewusers joiningafter completion ofa projectwill haveimmediate useof the new facilities withoutsharing in any of thecost. Anotheradvantageofcombining borrowedfunds with current fundingistheabilitytostructuredebtrepaymentschedulestoavoiddramaticrateincreasesotherwiseneeded to provideadequateamounts formulti-million-dollarprojects.

TheDistrict’s bonds areratedby nationalratingagencies as follows: Moody's Investors Service Standard & Poor's Fitch Ratings Aaa

In October 2021, the District received a ratings upgrade from AA+ to AAA+ from Fitch Ratings. Fitch Ratings recognized the District’s sound financial performance characterized by ample liquidity, healthy debt service coverage, and comprehensive fiscal planning. The rating also incorporates MSD’s regional customer base, adequate system capacity, manageable debt levels, and satisfactory protections for bondholders. These high ratings enable the District to pay a lower rate of interest than many other utilities, which has a positive effect on thecurrent andfuture budgets.