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• Debt Service Coverage -Under the scenario, MWMC performs extremely well on this <br />ratio, with estimated revenues more than capable of servicing the assumed debt level. <br />Even in the tenth year of the scenario, MWMC's ratio is still nearly triple the national <br />median. In other words, MWMC would need to incur three times the total debt load <br />projected in year 10 of the scenario to approach the national median of this measure. In <br />addition, this coverage ratio is a primary indicator to credit rating agencies of an agency's <br />capacity to assume debt. Fitch's states that "for utilities in the most stable operating <br />environments with a suitably diverse and healthy service area economy, I. Sx annual <br />coverage (emphasis added) ... could be sufficient for" the highest bond ratings. This <br />reflects the consistent view expressed by other credit rating agencies and providers that a <br />debt coverage ratio between 1.5 and 2.0 is healthy. <br />• Debt Ratio - As mentioned earlier, at the national median of 33 percent, approximately <br />one-third of the total fixed asset value of the industry is carried as debt (all capital assets, <br />both pre-existing and new, net of depreciation). In the 10-year scenario, MWMC's debt <br />ratio steadily increases as additional debt is incurred each year. Even so, in the final year <br />of the scenario, MWMC's ratio is approximately 11 percent, or one-third the national <br />median. Again, as with the Debt Service Coverage ratio, MWMC has ample room to <br />incur debt while remaining within favorable ranges on the credit-worthiness measures. <br />Summary <br />MWMC currently enjoys a very favorable position based on the identified quantitative and <br />qualitative measures. While the absence of long-term debt is a primary factor in this assessment, <br />it is not the only one. Prudent planning and financial management are large contributors to the <br />credit worthiness of the utility. The scenario presented shows that, even incurring the level of <br />debt currently assumed to meet capital needs over the next ten years, MWMC would perform <br />extremely well when compared to credit rating agency recommendations and the national <br />medians for the industry. <br />This report is intended to summarize the more significant qualitative and quantitative measures a <br />credit agency would use to assess the utility's credit worthiness, should MWMC seek to secure <br />bond financing. This report is not meant to present a comprehensive assessment of the scrutiny <br />MWMC would incur when pursuing debt, but can act as a valuable tool in identifying policies <br />and practices where MWMC could bolster its standing in the eyes of potential creditors. <br />2005 MWMC Financial Plan - Appendix I Page 28 <br />