Moody's Investors Service downgraded the Little Thompson Water District's first-lien junior revenue bonds to Baa2 from Baa1, affecting $15.3 million of debt.
The Colorado utility has an additional $14.4 million of state loans, which Moody's does not rate, for total outstanding debt of $29.7 million. Bondholder security is provided by a junior pledge on net revenues of the water utility that is subordinate to the 2006 Colorado Water Resource and Power Development Authority loan and on parity with the 2004 and 2006 Colorado Water Conservation Board loans.
The downgrade reflects the water district's declining tap-fee revenue, resulting in weak coverage of total annual debt service below the bond rate covenant. Going forward, the utility's coverage is expected to improve to adequate levels given approved annual rate increases, no plans for additional borrowing, and the presence of sound net working capital, according to Moody's analysts.
When last rated in 2004, the credit's annual debt service coverage of both senior- and junior-lien debt was a healthy 2.4 times. Coverage has narrowed but remained satisfactory in fiscal 2006 and 2007 at 1.64 times and 1.56 times total annual debt service, respectively.
