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HomeMy WebLinkAboutattachmentU.S. PUBLIC FINANCE CREDIT OPINION 21 October 2021 Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com » Contacts continued on last page CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Oshkosh (City of) WI Update to credit analysis Summary The City of Oshkosh, WI (Aa3) benefits from a sizable tax base supported by the presence of University of Wisconsin at Oshkosh and notable manufacturing companies. The city’s strengths also include a stable operating trend that continues to support an adequate reserve position. Favorably, the city has been resilient throughout the coronavirus pandemic, which had a relatively limited impact on the city’s local economy and financial profile. The city’s credit strengths are balanced against slightly below average resident income levels and somewhat elevated leverage related to long-term debt and pension burdens. Credit strengths »Large tax base that benefits from the presence of University of Wisconsin at Oshkosh »Stable operations with satisfactory reserves Credit challenges »Resident incomes lag similarly rated cities »Somewhat elevated leverage related to long-term debt and pension burdens Rating outlook Outlooks are typically not assigned to local government credits with this amount of debt. Factors that could lead to an upgrade »Significantly improved reserves and liquidity »Reduced leverage related to long-term debt and pension burdens »Tax base growth and improved resident wealth and income Factors that could lead to a downgrade »Sustained tax base or economic deterioration »Weakened resident income levels »Material declines in reserves or liquidity »Increased leverage MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Key indicators Sources: US Census Bureau, city's audited financial statements, Moody's Investors Service Profile The City of Oshkosh covers more than 24 square miles in the Fox River Valley on the western shore of Lake Winnebago and serves as the county seat of Winnebago County (Aa1). The city government provides municipal services including public safety, public works, health and human services, recreation and utilities to a population of more than 66,000 residents. Detailed credit considerations Economy and tax base: sizable tax base with institutional and manufacturing presence The city's tax base will likely continue growing because of the relatively limited impacts of the coronavirus pandemic and the amount of economic development currently underway. Oshkosh has a relatively diverse tax base with residential real estate comprising a majority (59%) of the tax base followed by commercial property (33%) and manufacturing property (6%). A combination of appreciating values and new construction drove six consecutive years of tax base growth, which reached $4.8 billion in fiscal 2021. Officials report generally stable operations among larger employers and taxpayers as well as some continued development underway within the city. Approximately 20% of local employment is in manufacturing, with a significant exposure to federal procurement contracts. Oshkosh Corporation (Baa3 stable), a manufacturer of heavy duty vehicles for military and industrial uses, is the city's largest employer with about 3,100 employees. Favorably, the company was awarded a sizable $6.8 billion contract with the US Department of Defense in 2015 and was recently awarded a 10-year contract to produce the U.S. Postal Service's (USPS) next generation delivery vehicles (NGDV), which will provide a degree of stability for the city's manufacturing employment. Aside from Oshkosh Corporation, city officials report continued investments by other local employers within the light manufacturing and service sectors. Other notable employers within the city include Bemis Company, Inc. (Baa2 stable), a manufacturer of packaging products (2,500 employees) and the University of Wisconsin at Oshkosh (1,300 employees). The university is the third largest in the This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE state system with an enrollment of about 15,000 students. The city's resident incomes are below national medians, partly because of its significant university presence. The city's median family income stands at about 90% of the national figure. Financial operations and reserves: satisfactory financial position The city's reserves will remain adequate for the rating because of its conservative budgeting practices and the relatively limited financial impact of the coronavirus pandemic. The adopted budget for 2021 was balanced and management notes the year is tracking toward a $2.6 million surplus because revenues are about $1.1 million over budget and expenditures are $1.5 million under budget. The city's American Rescue Plan Act (ARPA) allocation will total $20 million. City Council has directed the city to dedicate 75% of the ARPA funding for infrastructure projects and the remaining 25% for enhancing social services. Property taxes comprise the largest source of operating revenue (54%) followed by intergovernmental aid (30%). While Wisconsin municipalities are generally restricted to operating levy increases no greater than net new construction, Oshkosh benefits from certain exemptions and management reports roughly $2.4 million in unused operating levy capacity that could be used for operations through its debt service levy limit exemption. Liquidity The city has historically maintained adequate liquidity for the Aa3 rating. The liquidity dipped notably to $7.5 million in fiscal 2019 from $11 million because of the timing of reimbursement for certain capital projects. Liquidity improved in fiscal 2020 as the year closed with a cash position of $19 million, equal to 31% of revenue. Debt, pensions and OPEB: elevated leverage related to long-term debt and pension burdens We expect the city's debt burden to moderate somewhat given the city's longer-term goals to reduce its debt burden. Net of the general obligation debt supported by the city's water, sewer and stormwater utilities, the city's net direct debt burden remains somewhat high for the rating at 2.5% of full value and 2.0x operating revenue. The city generally pays down existing debt at a faster rate than it issues new debt, and expects to manage future borrowing levels to achieve a continued reduction in its debt burden. The city's fixed costs, inclusive of debt service and retirement contributions, typically hover around 25% of operating revenue. Legal security The general obligation unlimited tax (GOULT) bonds are supported by the city’s full faith and credit pledge and the authority to levy a dedicated property tax unlimited as to rate and amount. Debt structure All of the city's debt is long-term and fixed rate, with more than 80% of principal scheduled to be retired within 10 years. Debt related derivatives The city is not a party to any derivative agreements. Pensions and OPEB The city participates in the Wisconsin Retirement System (WRS), a statewide cost-sharing plan. Contributions are determined using a level contribution actuarial method in an effort to keep employer and employee contribution rates at a level percentage of payroll over time, and are set at 100% of the plan’s funding requirement. As a result, WRS remains one of the best-funded public employee retirement systems in the country.1 The city's three year adjusted net pension liability (ANPL) totals $118 million, equal to 1.9x operating revenue and 2.4% of full value. Moody's ANPL reflects the use of a market-based discount rate to value pension liabilities rather than the assumed rate of investment return on plan assets. In comparison, the reported net pension liability, based on the plan’s 7.0% discount rate, resulted in a net pension asset of about $9 million because reported assets exceed reported liabilities. The city provides Other Post-Employment Benefits (OPEB) to eligible retirees which it currently funds on a pay-as-you-go basis. Both the city’s reported net OPEB liability our adjusted net OPEB liability for the city, based on the use of a different discount rate, total about $8 million. 3 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE ESG considerations Environmental Environmental factors have not had a material impact on the city's credit profile. According to data of Moody's affiliate, Four Twenty Seven, Winnebago County has notable exposure to extreme rainfall and has a relatively limited exposure to other various environmental risks going forward. The city's continued investments in its stormwater enterprise are intended to help mitigate any potential flooding issues. Social Social factors are a consideration in the city's credit profile. The median age of city residents (34) is notably below the state (40) and national (38) figures while resident income levels are also below state and national figures, both of which are driven in part by the university presence. Governance Management has a demonstrated history maintaining satisfactory reserves. The city uses a conservative budgetary approach, along with a multiyear capital plan and borrowing strategy. Wisconsin cities have an institutional framework score of “A,” which is moderate. The sector's major revenue source, property tax revenue, is subject to a cap that restricts cities from increasing their operating property tax levies except to capture amounts represented by net new construction growth. Revenue and expenditures tend to be predictable. Across the sector, fixed and mandated costs are generally high. Expenditures are somewhat flexible, as collective bargaining is allowed for public safety employees but is curbed for non-public safety employees. Many cities use tax increment districts to attract economic development, often issuing debt to fund initial infrastructure in undeveloped areas. While tax increment districts are ultimately expected to generate revenue sufficient to cover initial city outlay, cities are exposed to economic downturns which could halt development. Rating methodology and scorecard factors The US Local Government General Obligation Debt methodology includes a scorecard, a tool providing a composite score of a local government’s credit profile based on the weighted factors we consider most important, universal and measurable, as well as possible notching factors dependent on individual credit strengths and weaknesses. Its purpose is not to determine the final rating, but rather to provide a standard platform from which to analyze and compare local government credits. 4 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE [1] Economy measures are based on data from the most recent year available. [2] Notching Factors are specifically defined in the US Local Government General Obligation Debt methodology. [3] Standardized adjustments are outlined in the GO Methodology Scorecard Inputs publication. Sources: US Census Bureau, audited financial statements, Moody's Investors Service Endnotes 1 Employer contributions that tread water equal the sum of current year service cost and interest on reported net pension liabilities at the start of the year, using reported actuarial assumptions. If plan assumptions are met exactly, contributions equal to the tread water indicator will prevent the reported net pension liabilities from growing. Net liabilities may decrease or increase in a given year because of factors other than the contribution amount, such as investment performance that exceeds or falls short of a plan's assumed rate of return. 5 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. 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REPORT NUMBER 1307603 6 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 7 21 October 2021 Oshkosh (City of) WI: Update to credit analysis Rating Action: Moody's assigns Aa3 to Oshkosh, WI's water system revenue bonds 21 Oct 2021 New York, October 21, 2021 -- Moody's Investors Service assigns a Aa3 rating to the City of Oshkosh, WI's $3 million Water System Revenue Refunding Bonds, Series 2021G. Moody's maintains a Aa3 rating on the city's outstanding water revenue bonds. Following the sale, the enterprise will have about $53 million of senior lien water revenue debt outstanding. RATINGS RATIONALE The Aa3 water revenue rating reflects a stable service area covering the City of Oshkosh (Aa3), strong liquidity, and adequate debt service coverage, though coverage levels lag similarly rated entities. The rating also incorporates the system's lack of local rate setting authority and satisfactory legal provisions. Favorably, enterprise operations have remained stable throughout the coronavirus pandemic and current projections reflect continued stability for several years. RATING OUTLOOK Outlooks are typically not assigned to local governments credits with this amount of debt. FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING - Significant expansion of the system's customer base - Sustained growth in debt service coverage - Moderation of system leverage FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING - Sustained trend of declining usage that negatively impacts net revenue - Narrowed debt service coverage or liquidity - Increased system leverage LEGAL SECURITY The system's water revenue debt, including the Series 2021G bonds, are senior lien revenue bonds secured by the net revenues of the city's water utility system. USE OF PROCEEDS Proceeds will current refund the outstanding Water System Revenue Bonds, Series 2012F for anticipated interest cost savings. PROFILE The water utility serves customers within the City of Oshkosh, located in Winnebago County (Aa1) along the western shores of Lake Winnebago. The system served about 24,000 water customers in 2020. The source of the water supply for the water system is Lake Winnebago. METHODOLOGY The principal methodology used in this rating was US Municipal Utility Revenue Debt published in October 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1095545 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_79004. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235 . Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Benjamin VanMetre Lead Analyst REGIONAL_MIDWEST Moody's Investors Service, Inc. 100 N Riverside Plaza Suite 2220 Chicago 60606 JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Alexandra Cimmiyotti Additional Contact REGIONAL_WEST JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. U.S. PUBLIC FINANCE CREDIT OPINION 21 October 2021 Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Oshkosh (City of) WI Water Enterprise Update to credit analysis Summary The City of Oshkosh’s Water Enterprise (Aa3) benefits from a stable service area covering the City of Oshkosh (Aa3), strong liquidity, and adequate debt service coverage. Additional strengths include satisfactory legal provisions, which include a pledge by the city to contribute funds, subject to appropriation, to cover annual debt service if net water system revenues are insufficient. Favorably, enterprise operations have remained stable throughout the coronavirus pandemic and current projections show continued stability for several years. The credit strengths are balanced against coverage levels that lag similarly rated entities and the lack of independent rate-setting authority. Credit strengths »Stable customer base including multiple large state institutions »History of rate adjustments to meet debt service coverage »Improved liquidity Credit challenges »Debt service coverage lags comparably rated utilities »Lack of independent rate-setting authority »Long-range capital improvement plan will require additional borrowing and annual rate increases Rating outlook Outlooks are typically not assigned to local governments credits with this amount of debt. Factors that could lead to an upgrade »Significant expansion of the system's customer base »Sustained growth in debt service coverage »Moderation of system leverage Factors that could lead to a downgrade »Sustained trend of declining usage that negatively impacts net revenue »Narrowed debt service coverage or liquidity MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE »Increased system leverage Key indicators Note: The table represents total debt service coverage, including senior lien revenue bonds and GOULT bonds issued for the water enterprise. Sources: US Census Bureau; city's audited financial statements Profile The water utility serves customers within the City of Oshkosh, located in Winnebago County (Aa1) along the western shores of Lake Winnebago. The system served about 24,000 water customers in 2020. The source of the water supply for the water system is Lake Winnebago. Detailed credit considerations Service area and system characteristics: stable customer base in the Fox River Valley; socioeconomic indices lag US medians The enterprise is likely to remain stable given the sound customer base and the relatively limited impacts of the coronavirus pandemic. The system operates a 16 million gallons per day water filtration plant that was put into operation in 1999 to provide potable water production and distribution for public use and for industrial and firefighting purposes. The system has four clean water reservoirs, with a combined capacity of about 3.1 million gallons and four elevated water tanks, with a total capacity of about 4.25 million gallons. The maximum water pumped in 2020 was about 7.9 million gallons per day while the minimum was about 4.6 million gallons per day. The average daily water pumped in 2020 totaled 5.8 million gallons. While residential customers comprise 90% of total customers, they only make up 64% of billings because of the large volumes used by commercial and industrial customers. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 21 October 2021 Oshkosh (City of) WI Water Enterprise: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE The system served about 24,000 water customers during 2020, which is consistent with prior years. The city's customer base is bolstered by the institutional presence of the University of Wisconsin at Oshkosh campus (15,000 students). The system's top 10 customers in fiscal 2020 accounted for about 16% of total billings, and included Oshkosh Correctional Institute (largest user at 3.4% of billings), healthcare providers and several manufacturers including Oshkosh Corporation (Baa3 stable), a manufacturer of heavy duty vehicles for military and industrial usage. The city's diverse local economy has been relatively stable throughout the coronavirus pandemic. Resident incomes are equal to about 90% of the national figure. Debt service coverage and liquidity: adequate debt service coverage; strong liquidity We expect debt service coverage on all of the system's debt to remain consistent in coming years following planned rate increases. Fiscal 2020 senior lien debt service coverage was about 1.7x while total debt service coverage is closer to 1.5x, which includes payments on junior lien revenue debt and general obligation unlimited tax (GOULT) bonds of the city. The system currently has a descending debt service schedule resulting in gradually improving debt service coverage through 2041. However, coverage will likely remain relatively level for several years as the system issues additional debt. As the system takes on more debt in coming years, we expect management to proactively set rates and to work with the PSC as needed. Liquidity System liquidity is exceptionally strong at more than 1,000 days cash on hand at the close of fiscal 2020. Debt and legal covenants: moderate leverage with additional borrowing under consideration; adequate rate covenant and debt service fund requirement The system's combined net debt burden, inclusive of outstanding revenue debt, the proposed 2021 revenue bonds and the GOULT debt paid by the utility, is equal to about 3.2x operating revenue. The city commissions updated utility rate studies and long-term cash flow analyses to examine the rate increases needed to sustain future capital borrowing. The Wisconsin Public Service Commission (PSC) has approved the requested rate increases in the past which has allowed the system to absorb additional debt service costs. While the lack of independent rate-setting authority is a credit challenge, management's success in managing rate increases and working with the PSC to have rates approved has been a stabilizing factor. The capital improvement plan includes about $74 million in projects through 2030, including issuing about $13 million in new revenue debt in 2022. The long-term debt plans would require an average annual rate increase of about 1.8%. We expect officials to be proactive in requesting future rate increases to maintain healthy operations and debt service coverage. Legal provisions of the bonds include a rate covenant of 1.30x current annual debt service and an additional bonds test of 1.20x maximum annual debt service (MADS). The system must maintain a debt service reserve fund balance at the lessor of 10% of outstanding parity bonds, maximum annual debt service (MADS) or 125% of average annual debt service for senior lien bonds. The bonds include a “service to city” clause under which the City of Oshkosh agrees to pay for the services rendered to the city by the water utility fund up to annual debt service, subject to appropriation. The city has not needed to support the water utility under this clause before. Debt structure The water system's debt consists of senior and junior lien revenue bonds, which are all long-term and fixed rate. In addition to the senior lien debt, the system also has $3 million of unrated second lien Safe Water Loans outstanding. The water utility additionally supports debt service on approximately $3 million of the city's GO debt. The system's current debt service schedule is descending following MADS which occurs in fiscal 2022. However, additional debt relating to the system's capital plan will result in a leveling out of the debt service schedule. Debt related derivatives The water system has no exposure to any debt-related derivatives. Pensions and OPEB Employees of the water system, like most city employees, participate in the Wisconsin Retirement System (WRS), a statewide cost sharing defined benefit pension plan. For more information on the City of Oshkosh's pension obligations, please see our most recent Credit Opinion on the city. 3 21 October 2021 Oshkosh (City of) WI Water Enterprise: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE ESG considerations Environmental According to data of Moody's affiliate, Four Twenty Seven, Winnebago County has notable exposure to extreme rainfall and has a relatively limited exposure to other various environmental risks going forward. The city's continued investments in its stormwater enterprise are intended to help mitigate any potential flooding issues. Social Social factors are a consideration in the city's credit profile. The median age of city residents (34) is notably below the state (40) and national (38) figures while resident income levels are also below state and national figures, both of which are driven in part by the university presence. Governance The City of Oshkosh, WI Water Enterprise is a separate enterprise fund of the City of Oshkosh. The system is governed by the City Council of the City and is directed by the Director of Public Works. Similar to other water utilities in the state, rate increase must be approved by the Wisconsin Public Service Commission. The PSC has approved the requested rate increases for the Oshkosh Water Enterprise in the past which has allowed the system to absorb additional debt service costs. 4 21 October 2021 Oshkosh (City of) WI Water Enterprise: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. 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REPORT NUMBER 1307378 5 21 October 2021 Oshkosh (City of) WI Water Enterprise: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 6 21 October 2021 Oshkosh (City of) WI Water Enterprise: Update to credit analysis U.S. PUBLIC FINANCE CREDIT OPINION 21 October 2021 Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com » Contacts continued on last page CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Oshkosh (City of) WI Update to credit analysis Summary The City of Oshkosh, WI (Aa3) benefits from a sizable tax base supported by the presence of University of Wisconsin at Oshkosh and notable manufacturing companies. The city’s strengths also include a stable operating trend that continues to support an adequate reserve position. Favorably, the city has been resilient throughout the coronavirus pandemic, which had a relatively limited impact on the city’s local economy and financial profile. The city’s credit strengths are balanced against slightly below average resident income levels and somewhat elevated leverage related to long-term debt and pension burdens. Credit strengths »Large tax base that benefits from the presence of University of Wisconsin at Oshkosh »Stable operations with satisfactory reserves Credit challenges »Resident incomes lag similarly rated cities »Somewhat elevated leverage related to long-term debt and pension burdens Rating outlook Outlooks are typically not assigned to local government credits with this amount of debt. Factors that could lead to an upgrade »Significantly improved reserves and liquidity »Reduced leverage related to long-term debt and pension burdens »Tax base growth and improved resident wealth and income Factors that could lead to a downgrade »Sustained tax base or economic deterioration »Weakened resident income levels »Material declines in reserves or liquidity »Increased leverage MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Key indicators Sources: US Census Bureau, city's audited financial statements, Moody's Investors Service Profile The City of Oshkosh covers more than 24 square miles in the Fox River Valley on the western shore of Lake Winnebago and serves as the county seat of Winnebago County (Aa1). The city government provides municipal services including public safety, public works, health and human services, recreation and utilities to a population of more than 66,000 residents. Detailed credit considerations Economy and tax base: sizable tax base with institutional and manufacturing presence The city's tax base will likely continue growing because of the relatively limited impacts of the coronavirus pandemic and the amount of economic development currently underway. Oshkosh has a relatively diverse tax base with residential real estate comprising a majority (59%) of the tax base followed by commercial property (33%) and manufacturing property (6%). A combination of appreciating values and new construction drove six consecutive years of tax base growth, which reached $4.8 billion in fiscal 2021. Officials report generally stable operations among larger employers and taxpayers as well as some continued development underway within the city. Approximately 20% of local employment is in manufacturing, with a significant exposure to federal procurement contracts. Oshkosh Corporation (Baa3 stable), a manufacturer of heavy duty vehicles for military and industrial uses, is the city's largest employer with about 3,100 employees. Favorably, the company was awarded a sizable $6.8 billion contract with the US Department of Defense in 2015 and was recently awarded a 10-year contract to produce the U.S. Postal Service's (USPS) next generation delivery vehicles (NGDV), which will provide a degree of stability for the city's manufacturing employment. Aside from Oshkosh Corporation, city officials report continued investments by other local employers within the light manufacturing and service sectors. Other notable employers within the city include Bemis Company, Inc. (Baa2 stable), a manufacturer of packaging products (2,500 employees) and the University of Wisconsin at Oshkosh (1,300 employees). The university is the third largest in the This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE state system with an enrollment of about 15,000 students. The city's resident incomes are below national medians, partly because of its significant university presence. The city's median family income stands at about 90% of the national figure. Financial operations and reserves: satisfactory financial position The city's reserves will remain adequate for the rating because of its conservative budgeting practices and the relatively limited financial impact of the coronavirus pandemic. The adopted budget for 2021 was balanced and management notes the year is tracking toward a $2.6 million surplus because revenues are about $1.1 million over budget and expenditures are $1.5 million under budget. The city's American Rescue Plan Act (ARPA) allocation will total $20 million. City Council has directed the city to dedicate 75% of the ARPA funding for infrastructure projects and the remaining 25% for enhancing social services. Property taxes comprise the largest source of operating revenue (54%) followed by intergovernmental aid (30%). While Wisconsin municipalities are generally restricted to operating levy increases no greater than net new construction, Oshkosh benefits from certain exemptions and management reports roughly $2.4 million in unused operating levy capacity that could be used for operations through its debt service levy limit exemption. Liquidity The city has historically maintained adequate liquidity for the Aa3 rating. The liquidity dipped notably to $7.5 million in fiscal 2019 from $11 million because of the timing of reimbursement for certain capital projects. Liquidity improved in fiscal 2020 as the year closed with a cash position of $19 million, equal to 31% of revenue. Debt, pensions and OPEB: elevated leverage related to long-term debt and pension burdens We expect the city's debt burden to moderate somewhat given the city's longer-term goals to reduce its debt burden. Net of the general obligation debt supported by the city's water, sewer and stormwater utilities, the city's net direct debt burden remains somewhat high for the rating at 2.5% of full value and 2.0x operating revenue. The city generally pays down existing debt at a faster rate than it issues new debt, and expects to manage future borrowing levels to achieve a continued reduction in its debt burden. The city's fixed costs, inclusive of debt service and retirement contributions, typically hover around 25% of operating revenue. Legal security The general obligation unlimited tax (GOULT) bonds are supported by the city’s full faith and credit pledge and the authority to levy a dedicated property tax unlimited as to rate and amount. Debt structure All of the city's debt is long-term and fixed rate, with more than 80% of principal scheduled to be retired within 10 years. Debt related derivatives The city is not a party to any derivative agreements. Pensions and OPEB The city participates in the Wisconsin Retirement System (WRS), a statewide cost-sharing plan. Contributions are determined using a level contribution actuarial method in an effort to keep employer and employee contribution rates at a level percentage of payroll over time, and are set at 100% of the plan’s funding requirement. As a result, WRS remains one of the best-funded public employee retirement systems in the country.1 The city's three year adjusted net pension liability (ANPL) totals $118 million, equal to 1.9x operating revenue and 2.4% of full value. Moody's ANPL reflects the use of a market-based discount rate to value pension liabilities rather than the assumed rate of investment return on plan assets. In comparison, the reported net pension liability, based on the plan’s 7.0% discount rate, resulted in a net pension asset of about $9 million because reported assets exceed reported liabilities. The city provides Other Post-Employment Benefits (OPEB) to eligible retirees which it currently funds on a pay-as-you-go basis. Both the city’s reported net OPEB liability our adjusted net OPEB liability for the city, based on the use of a different discount rate, total about $8 million. 3 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE ESG considerations Environmental Environmental factors have not had a material impact on the city's credit profile. According to data of Moody's affiliate, Four Twenty Seven, Winnebago County has notable exposure to extreme rainfall and has a relatively limited exposure to other various environmental risks going forward. The city's continued investments in its stormwater enterprise are intended to help mitigate any potential flooding issues. Social Social factors are a consideration in the city's credit profile. The median age of city residents (34) is notably below the state (40) and national (38) figures while resident income levels are also below state and national figures, both of which are driven in part by the university presence. Governance Management has a demonstrated history maintaining satisfactory reserves. The city uses a conservative budgetary approach, along with a multiyear capital plan and borrowing strategy. Wisconsin cities have an institutional framework score of “A,” which is moderate. The sector's major revenue source, property tax revenue, is subject to a cap that restricts cities from increasing their operating property tax levies except to capture amounts represented by net new construction growth. Revenue and expenditures tend to be predictable. Across the sector, fixed and mandated costs are generally high. Expenditures are somewhat flexible, as collective bargaining is allowed for public safety employees but is curbed for non-public safety employees. Many cities use tax increment districts to attract economic development, often issuing debt to fund initial infrastructure in undeveloped areas. While tax increment districts are ultimately expected to generate revenue sufficient to cover initial city outlay, cities are exposed to economic downturns which could halt development. Rating methodology and scorecard factors The US Local Government General Obligation Debt methodology includes a scorecard, a tool providing a composite score of a local government’s credit profile based on the weighted factors we consider most important, universal and measurable, as well as possible notching factors dependent on individual credit strengths and weaknesses. Its purpose is not to determine the final rating, but rather to provide a standard platform from which to analyze and compare local government credits. 4 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE [1] Economy measures are based on data from the most recent year available. [2] Notching Factors are specifically defined in the US Local Government General Obligation Debt methodology. [3] Standardized adjustments are outlined in the GO Methodology Scorecard Inputs publication. Sources: US Census Bureau, audited financial statements, Moody's Investors Service Endnotes 1 Employer contributions that tread water equal the sum of current year service cost and interest on reported net pension liabilities at the start of the year, using reported actuarial assumptions. If plan assumptions are met exactly, contributions equal to the tread water indicator will prevent the reported net pension liabilities from growing. Net liabilities may decrease or increase in a given year because of factors other than the contribution amount, such as investment performance that exceeds or falls short of a plan's assumed rate of return. 5 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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REPORT NUMBER 1307603 6 21 October 2021 Oshkosh (City of) WI: Update to credit analysis MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Contacts Benjamin J VanMetre +1.312.706.9951 AVP-Analyst ben.vanmetre@moodys.com Alexandra J. Cimmiyotti +1.415.274.1754 VP-Sr Credit Officer alexandra.cimmiyotti@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 7 21 October 2021 Oshkosh (City of) WI: Update to credit analysis