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POSITIVE OUTLOOK ON SOLID FINANCIALS: The Outlook revision to Positive from Stable reflects solid fiscal 2016 and 2017 financial results related to GLWA's initial operations of the systems, outpacing prior expectations.
The lease of the systems by GLWA provides further assurance that system operations will remain independent of the city.
The majority of GLWA's revenues come from suburban customers.
Alternatively, GLWA's failure to maintain the improved operational and financial performance of its water and sewer utilities due to insufficient revenue recovery or higher than expected costs could result in a change in Outlook back to Stable.
GLWA entered into 40-year leases of DWSD's water and sewer systems (except for the local city infrastructure), as well as a water and sewer services agreement (combined lease agreements) with the city in June 2015.
DWSD continues to own and operate the city retail water and sewer systems and serves as GLWA's agent with regards to the rate setting, billing and collection of city retail accounts.
Key terms of the agreements, which are embedded in GLWA's financial projections, include a $50 million annual lease payment to the city, although such moneys may only be used at the city's option to fund pay-go capital improvements related to Detroit's local water and sewer systems or DWSD-related debt service associated with the local systems and/or GLWA regional systems.
Fitch's calculations include both GLWA and DWSD operating revenues and expenses given the requirements under the trust indenture, leases and related agreements.
GLWA is working with DWSD to formulate a plan that is expected to be completed by fiscal 2019 Q1 whereby this amount will ultimately be paid to GLWA by DWSD.
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- gluttony kills more than the sword