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Monday, January 9, 2012

Nashua bonds for acquisition of Pennichuck utility rated ‘AAA’

NASHUA – Fitch Ratings has given the city’s $150 million general obligation bonds for its acquisition of Pennichuck Corp. the maximum “AAA” rating, according to wire reports.

The bonds are scheduled to price on Jan. 11 via negotiation, officials said.

Bond proceeds will be used to acquire the privately owned water systems serving Nashua and surrounding communities through a stock acquisition of Pennichuck Corp.

On Friday, Fitch also affirmed the following ratings:

$900,000 outstanding GO bonds, series 1999, at “AAA”

$5.4 million outstanding GO capital improvement bonds, series 2010, at “AAA”

$13.5 million GO capital improvement bonds, series 2011 at “AAA”

The city will pay $29 a share for Pennichuck stock; $137.8 million for 4.7 million shares, $2.2 million for severance packages for outgoing Pennichuck executives, $5.3 million in legal and other fees, $5 million for a water rate stabilization fund and $1.8 million in bond issuance costs, making the total acquisition bill $152.1 million.

The bonds will be paid with Pennichuck revenue, in large part through water rates to be set by regulators.

Fitch listed key drivers behind the “AAA” rating, including an expectation that the acquisition bond debt service will be supported by utility revenues, but ultimately that the bonds, a general obligation of the city, are backed by its taxing power.

The New Hampshire Public Utility Commission’s approval of the acquisition’s rate-making structure also played a key role in the “AAA” rating, according to reports.

In its rating, Fitch noted city management made spending cuts in order to keep tax rates under control, addressed increasing employee costs, and maintained fund balances within “prudent policy levels.”

Even with a slight decline in fiscal 2011, Fitch said reserve funds remain healthy and provide financial flexibility if pressures should arise.

After getting the PUC’s green light right before Thanksgiving to acquire Pennichuck Corp., city officials agreed in December to delay for a month the purchase of Pennichuck Corp. and its water utility in the hopes of getting better bond rates for the purchase.

Nashua had been trying to purchase Pennichuck Corp. and its subsidiaries since 2002 to control the future of the region’s water supply.

The city could potentially bond an additional $60 million in outstanding Pennichuck debt that it will assume upon purchase.

Aldermen have approved the borrowing of as much as $220 million.

It is widely believed that once the acquisition is complete, Nashua will be the only municipality in the country to own a water utility, run by an independent board that supervises company operations and answers to state regulators, while serving customers in Nashua and surrounding towns.

For more information, visit www.fitchratings.com.

Maryalice Gill can be reached at 594-6490 or mgill@nashuatelegraph.com.