S&P Hikes N.O. Sewer Debt

Despite a substantially reduced customer base that has been slow to recover since the hurricanes of 2005, the sewer revenue debt issued by the New Orleans Sewerage and Water Board was raised to BBB-minus from B by Standard & Poor’s on Monday. There is $54.6 million of sewer debt outstanding.

Standard & Poor’s credit analyst Sarah Smaardyk said board officials have been willing to raise rates to support operations and capital needs. The board raised sewerage rates by 15% in 2003 and again in 2004, and followed that with 14% increases in 2005 and 2006.

“We expect the board will maintain adequate debt service coverage on all liens as it works through its sizable capital improvement program,” Smaardyk said in the rating report. “Because completing the program requires consistent annual rate increases, we believe that delays in passing rate increases could place pressure on the system’s financial operations.”

The population of New Orleans is estimated at 333,000, down from 455,000 before the 2005 hurricanes.

The board’s capital plans calls for expenditures of $520.3 million over the next five years for the sewer system. Total water utility system needs, including drinking water and drainage efforts, are estimated at $11.1 billion.

The city had completed much of the work needed to comply with a 1998 Environmental Protection Agency consent decree resulting from discharges of untreated sewage before Hurricane Katrina hit the city in 2005. Due to the storm, almost all the projects must be redone.

The board’s debt is rated Ba2 by Moody’s Investors Service and BBB-minus by Fitch Ratings.

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