Toledo Sewer Bonds Cut

Fitch Ratings last week downgraded Toledo’s sewer bonds to A-plus from AA-minus due in part to a weakening of the system’s debt service coverage levels over the past two years.

The downgrade affects $20.5 million of bonds issued in 2003 and 2005. The outlook is stable.

Fitch expects the sewer system to face pressure as Toledo starts to finance large projects under a federally mandated consent decree plan to upgrade the system.

The city’s consent decree costs total $520 million, of which $300 million remains to be funded. Most of that will be financed through state loans, which are subordinate to outstanding revenue bonds, Fitch noted.

Debt service coverage had been at 1.6 times in recent years but fell to 1.1 times in 2009, with similar results expected in 2010, Fitch said.

On the bright side, the system’s senior-lien debt service coverage was 5 times in 2009 and is expected to reach 9.5 times in fiscal 2010.

Liquidity is also strained after several years of decline, analysts said.

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