The SFPUC’s Water Enterprise notched a key win this month when Moody’s Investors Service and S&P Global Ratings each affirmed the enterprise’s high bond ratings with stable outlooks. This is a terrific outcome – in the near term, it helped minimize the Water Enterprise’s cost to issue more than $523 million of refunding bonds, which in turned allowed us to lower the enterprise’s annual payments on outstanding debt by more than $56.2 million. The favorable rating outcome will also help lower the Water Enterprise’s cost of borrowing when it returns to the bond market in June with additional bonds to fund new projects.

Bond credit rating agencies like Moody’s and S&P review borrowers’ credit (i.e., their ability to repay their bonds). Based on this review, the agencies then assign a credit rating which significantly impacts a borrower’s cost of borrowing. This is similar to personal credit scores, which can affect our ability to buy a home or car. Like many local government agencies, the SFPUC finances the vast majority of our infrastructure improvements through bonds issued by our respective enterprises which in turn allows us to reduce the impact of large capital expenditures on ratepayers by spreading them out over 30 years.  

Why Credit Ratings Matter

Maintaining high credit ratings is crucially important to the SFPUC. Because the agency borrows money to fund most of our $11+ billion capital program, maintaining a strong credit rating keeps interest costs down and our customer rates more affordable in the long term.

The high bond ratings come despite several headwinds facing the water utility sector, particularly in California. In the last six months, S&P has published several reports that have noted their credit concerns and an increase in negative S&P rating actions for utilities.  

How the SFPUC Secured the High Bond Ratings

With this gloomy backdrop, the SFPUC finance team proactively strengthened our financial position and made planning changes that improved the financial metrics assessed by rating agencies in our Fiscal Year 2026-35 10-Year Financial Plan. This included using more conservative assumptions and changes – such as deferring or eliminating certain capital costs and raising near-term rates – to ensure we have adequate cushion to pay our bonds and adequate reserves to protect our operations.  

After this modified 10-Year Plan was adopted by the SFPUC Commission in February, the Capital Finance team worked with its independent financial advisors and investment bankers to develop an in-depth presentation that demonstrated the Water Enterprise’s credit strengths and risk mitigation strategies. The compelling presentation from our senior leadership team, led by General Manager Dennis Herrera, Deputy General Manager Ron Flynn and AGMs Nancy Hom, Steve Ritchie and Stephen Robinson as well as other key finance managers and the capital finance staff, helped convince the rating agencies to confirm the Water’s Enterprise high ratings from Moody’s and S&P.  

“The importance of keeping our strong credit rating cannot be overemphasized, given the major role that borrowing plays in supporting our capital program. Trading off higher short-term rate increases to save added borrowing costs in the long term was a strategic decision that we believe paid off. However, rate affordability is still a priority for the SFPUC and through the next budget cycle, we will have to calibrate the operating and capital budgets to ensure rates do not become unaffordable,” says Nancy Hom, SFPUC Assistant General Manager for Business Services and CFO.

Moody’s told investors in their credit ratings report for the 2025 Water Revenue Bonds that “the SFPUC's strong wholesale and retail service areas will make scheduled rate increases manageable and, along with adjustments to capital spending, will improve debt service coverage and sustain the current strong liquidity position. The outlook also incorporates the healthy supplies of stored water to offset the potential impact to supply from wildfire, seismic events or drought.”  Similarly, S&P Global Ratings told investors in their bond credit rating report that “we believe the SFPUC’s financial management practices are strong, comprehensive, and support high credit quality.”