Water Utility Bonds Assessing Risk and Resilience in an Essential Sector
- Water utilities are essential, capital-intensive systems funded largely through customer rates and municipal bonds.
- Water scarcity, PFAS contamination, and aging infrastructure are contributing to higher costs and greater credit differentiation across the sector.
- Bessemer can help evaluate how water utility bonds may fit within your portfolio, with attention to service area economics, system size, liquidity, infrastructure needs, and management quality.
Many of us don’t think twice when we turn on our faucet. However, having clean, reliable water is the product of a large and complex system powered by water utilities across the country.
In this paper, we will explore how municipal water systems operate, their unique challenges, and how we are navigating this complex sector to find high-quality bond investments that can benefit our clients on an after-tax basis.
The Municipal Water Sector
Water utilities, or systems, are responsible for sourcing, cleaning, and distributing safe, reliable water to households and businesses. These systems are either privately owned or operated by public entities, such as local governments or public authorities. In the U.S., approximately 84% of water utilities are government-run, which enables them to issue tax-exempt debt. It’s estimated that bonds issued by water systems account for around $300 billion of the $4.3 trillion municipal bond market.
Past performance is no guarantee of future results. This material is provided for your general information. It does not take into account the particular investment objectives, financial situations, or needs of individual clients. This material has been prepared based on information that Bessemer Trust believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. This presentation does not include a complete description of any portfolio mentioned herein and is not an offer to sell any securities. Views expressed herein are current only as of the date indicated and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in economic growth, corporate profitability, geopolitical conditions, and inflation. The mention of a particular security is not intended to represent a stock-specific or other investment recommendation, and our view of these holdings may change at any time based on stock price movements, new research conclusions, or changes in risk preference.
