Guam Waterworks Authority outlook raised by Fitch

Fitch Ratings raised the outlook on BBB-rated Guam Waterworks Authority to stable from negative.

The improved outlook affects $136.2 million in outstanding bonds and is likely to apply to the $270 million of bonds the authority is expected to price in July.

Fitch said the improved outlook was due to stronger margins “driven by multiple years of significant rate adjustments approved by the Public Utilities Commission, as well as Fitch’s expectation for sustained improvement.”

A 16.7% rate increase in fiscal 2024 drove operating revenues 20% higher relative to fiscal 2023. The commission has approved a multi-year rate plan covering fiscal 2025 to 2029, which includes a 11.55% rate increase in fiscal 2025.

In explaining its BBB rating Fitch noted the utility’s strong revenue defensibility and operating risk profile, countered by elevated leverage.

The Guam Waterworks Authority provides water and sewer service in Guam, which has a 168,000 civilian population and a substantial military population.

The authority’s operating cost burden is very low, slightly over $5,800 per million gallons of water production and sewage treated in fiscal 2024, Fitch said.

The fiscal 2025-2029 capital improvement program totals nearly $900 million.

The utility’s non-revenue water is elevated at over 60% but the utility is working to reduce that level.

The authority has 304 days’ cash on hand and all-in-debt service coverage of 1.7 times.

Leverage improved to 7.6X in fiscal 2024 from 14.5X in fiscal 2022.

The utility’s bonds are currently rated Baa2 by Moody’s Ratings and A-minus by S&P Global Ratings.