Summary of Moody's Ratings Action for Topeka, KS (August 9, 2024)

Rating Actions:

• Moody's affirmed Topeka, Kansas' Aa3 issuer and general obligation unlimited tax (GOULT) ratings.
• Affirmed Aa3 senior lien and A1 junior lien combined utility revenue ratings.
• Assigned Aa3 rating to $26.5 million Combined Utility Revenue Bonds, Series 2024-B.
• Total outstanding debt post-sale: ~$560 million (GOULT and utility revenue bonds).
• Outlook: Stable.

Rationale:

• Issuer/GOULT Aa3 Rating: Reflects Topeka’s economic growth, strong housing demand, and robust operating reserves/liquidity, supported by conservative budgeting. The state capital status offsets weaker per capita income and full value. Leverage ratio (~250%) aligns with peers, with planned $26.5 million debt issuance through 2028 expected to maintain this level.
• Senior Lien Utility Aa3 Rating: Driven by a large, stable service area, multiyear rate increases, strong liquidity, and infrastructure investment. Despite elevated debt, bond covenants (1.25x rate covenant, debt service reserve) are satisfactory.
• Junior Lien Utility A1 Rating: One notch below senior lien due to subordination and weaker covenants (1.05x rate covenant).
• Stable Outlook: Supported by regional importance, revenue growth from economic expansion and rate hikes, steady reserves, and moderate leverage.

Factors for Upgrade:

• Long-term liabilities ratio below 200%.
• Significant improvement in resident income and full value per capita.
• Utility debt service coverage exceeding 2x.

Factors for Downgrade:

• Operating reserve ratio below 40%.
• Long-term liabilities ratio above 350%.
• Utility debt service coverage below 1.5x.
• Utility days cash on hand below 185-day reserve policy.

Legal Security:

• GOULT Bonds: Backed by Topeka’s full faith, credit, and unlimited ad valorem property taxes.
• Utility Revenue Bonds: Payable from net system revenue; junior lien bonds (Series 2021-B) subordinate to state revolving fund loans and senior lien bonds.

Use of Proceeds:

• Series 2024-B bonds will fund improvements to the combined utility system (water, stormwater, wastewater) and a debt service reserve fund.

Profile:

• Topeka, Kansas’ state capital, population ~123,000 (2023), provides public safety, economic development, and utility services (water, stormwater, wastewater).

Methodologies:

• Issuer/GOULT: US Cities and Counties (July 2024).
• Utility Revenue: US Municipal Utility Revenue Bonds (March 2024).