You may have seen media reports indicating that the municipal bond market is “broken” as a result of the worldwide COVID-19 pandemic. This is a huge issue for cities, towns and water resource utilities and agencies that rely on municipal bonds for infrastructure financing. To get a bit more perspective, WaterNow has had a few conversations with experts in this space and the big picture they’ve shared with us is that notwithstanding the recent volatility, the municipal bond market is functioning and trading is continuing with bond issuances getting done.
The issue, in over-simplified terms, is that with many water utilities around the country suspending water shut-offs, and some customers unable to pay their water bills, there is a fear that local agencies will see a decrease or deferral in revenues that could adversely affect their ability to cover their debt obligations which makes these usually rock solid investments look a little more risky. Water utilities may be somewhat better positioned than other local entities that rely on sales taxes and other revenues likely to decrease as economic activity declines; water rate revenue is not likely to dramatically decline, even allowing for consumer accommodations, and as an essential service, water infrastructure remains a strong investment.
We are also hearing that while the market has been volatile with a wider range of interest rates for issuers compared with recent years, these rates are still within historical ranges. Issuers and underwriters are also increasing their strategic thinking about pricing models and timing for market entry. So while market fluctuations are likely to continue, utilities with strong creditworthiness and proactive management will continue to have access to the muni bond market.
WaterNow is planning to host a webcast conversation with ratings agencies and other financial experts on municipal bonds and water as part of our online Tap into Resilience Series within the next few weeks. Stay tuned for details on how you can join in!