Fitch Ratings Tuesday downgraded $1.3 billion of Puerto Rico Aqueduct and Sewer Authority senior revenue debt to BBB from BBB-plus.
In early April, Fitch recalibrated PRASA’s rating to BBB-plus. The previous rating was BBB-minus.
Tuesday’s downgrade stems from weakened fiscal performance, Fitch said. While fiscal 2010 net revenues were above prior year net revenues, Puerto Rico paid $27 million of debt service costs on commonwealth-backed “Superaqueduct bonds” as the authority was unable to meet those costs. Fiscal 2010 ended June 30.
In addition, PRASA projects a $150 million to $160 million fiscal 2012 deficit to meet all operating and increasing debt service obligations. The government will allocate $105 million in fiscal 2011 to cover PRASA’s operating costs.
Like other utilities, PRASA has held back on implementing scheduled rate hikes to ease costs for its customers. That has increased the authority’s reliance on the commonwealth to help balance operating budgets.
“PRASA’s growing budget imbalance over the near-term and reliance on commonwealth assistance is a concern as it diminishes PRASA’s ability to be fully self-supporting,” according to Fitch. “Furthermore, it potentially exposes PRASA’s customers to rate shock should PRASA be forced to implement another sizeable rate hike in a single year to ensure sufficient operating monies in the event commonwealth appropriations cease.”
The agency has $1.94 billion of outstanding bonds, as of Dec. 31, according to Puerto Rico’s financial information and operating data report. That report is dated May 1 and is located on the Government Development Bank for Puerto Rico’s website.
The water utility will need to invest in capital projects to meet regulatory milestones and maintain its system. The fiscal 2010-2014 capital improvement program is $1.57 billion, according to Fitch.
Credit strengths include PRASA’s strong management, access to GDB interim funding, and its role as the island’s sole water provider. The system serves four million residents and about five million tourists annually.
