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• Affordability (Example: Sewer service rates no more than 2 to 4 percent of local <br />household income), and <br />• Non-debt equity in total plant assets and in capital projects to be fmanced. <br />^ ICBA Fitch states, "The proportion of equity should generally be at a minimum <br />15%-25%" and "the highest rated utilities often fund 50% or more of their capital <br />requirements from pay-as-you-go sources." <br />^ Moody's states, "(We) view positively, balanced contributions from cash and <br />debt." (i.e. roughly equal amounts of cash and debt). <br />Perhaps the most significant quantitative factors are the income statement and balance sheet <br />components and ratios. These fmancial measures provide a uniform basis by which the credit <br />rating agencies may assess the fiscal strength of a utility. Each major rating agency employs its <br />own set of fmancial measurements; however, all share the same primary components. For <br />example, Moody's Municipal Enterprise Ratios, which follow, are the measures Moody's <br />employs when assigning bond ratings to municipal sewer systems. <br />Moody's Municipal Enterprise Ratios <br />Balance Sheet Components and Ratios <br />Net funded debt: Long-term debt (gross long-term debt plus the current portion of long-term <br />debt) plus accrued interest payable, less the balance in both the debt service reserve fund and <br />the debt service fund. <br />Net fined assets: Fixed assets, less accumulated depreciation. <br />Working capital: Net current assets and net assets of all funds and accounts not devoted to <br />debt service. <br />**Debt ratio (%): Net funded debt, divided by the sum of net fixed assets, plus net working <br />capital. <br />Income Statement Components and Ratios <br />Gross revenue and income: Operating revenue, plus non-operating revenue. <br />Operating and maintenance expenses: Operating and maintenance expenses, net of <br />depreciation, amortization and interest requirements. <br />Net revenues: Gross revenue and income, less operating and maintenance expenses. <br />**Operating ratio (%): Operating and maintenance expenses, divided by the total operating <br />expenses. <br />**Net take-down (%): Net revenues, divided by gross revenue and income. <br />**Interest coverage(z): Net revenues, divided by interest requirements for the period. <br />**Debt service coverage (z): Net revenues, divided by principal and interest requirements <br />for the period. <br />*Debt service safety margin (z): Net revenues, less principal and interest requirements for <br />the period, divided by gross revenue and income. <br />**These five ratios are identified in the current (January 1992) MWMC Financial <br />Master Plan as "credit quality indicators. " <br />2005 MWMC Financial Plan - Appendix I Page 25 <br />