DALLAS — The decision of San Antonio-area voters to dissolve the 66-year-old Bexar Metropolitan Water District is not expected to lower ratings of the utility’s $216 million of outstanding revenue bonds, according to Standard & Poor’s.
The struggling utility is expected to be absorbed by the much larger San Antonio Water System after approval by the U.S. Department of Justice, the Texas secretary of state, and the boards of the two water utilities.
However, Bexar Met’s debt will not be combined with that of SAWS, according to analysts.
“We understand, based on a preliminary transition plan from SAWS management, that Bexar Met will become a component unit of or some other type of separate division within SAWS for an undetermined amount of time,” Standard & Poor’s noted.
“The existing rate base of SAWS will not absorb or otherwise subsidize existing Bexar Met obligations, including its long-term debt, commercial paper, or obligations to Bexar Metropolitan Development Corp.,” it said.
Bexar Met, serving nearly 90,000 customers in a 273-square-mile area of Bexar and Atascosa counties, has fought to maintain its independence from SAWS in recent years. But about 75% of the voters in the Nov. 8 election approved the dissolution.
“We respect that decision and thank our ratepayers for allowing us to serve them for the last 66 years,” Bexar Met said in response to the vote.
“After the vote receives final approval from the U.S. Department of Justice, which could take up to 90 days, SAWS will move forward with integration,” SAWS officials stated in a post-election press release.
Standard & Poor’s still has the Bexar Metropolitan Water District on its watch list for a possible downgrade with a senior-lien rating of A.
Moody’s Investors Service placed Bexar Met’s A1 senior rating on review for possible downgrade Aug. 4.
The junior-lien rating is A2 and is also under review.
“The review for downgrade reflects the district’s near-term cash challenges as a result of the nonpayment event of default of the district’s $50 million line of credit agreement backing the district’s commercial paper program and the inability of the district to publicly issue debt to satisfy the requirement on $10 million of outstanding commercial paper,” wrote Moody’s analyst Michelle Smithen.
The Bexar Metropolitan Water District’s line of credit agreement ended this year with the passage of Senate Bill 341 by the Legislature that required an election to dissolve the district.
The bill’s passage triggered a nonpayment-related default of the district’s commercial paper line of credit with Wells Fargo.
The district has $10 million in outstanding commercial paper out of a formerly approved line of $50 million. Wells Fargo has frozen the line of credit, and repayment of the outstanding $10 million is required by Dec. 1.
The state legislation prevents the district from issuing long-term publicly issued debt with the exception of refunding for a specified savings threshold. This exception does not apply to satisfaction of the line of credit.
The Bexar Metropolitan Water District is exploring options to satisfy the debt without tapping its own cash reserves. Possible options include a private placement loan.
As of April 30, the district had an audited cash balance of $12.4 million. If the district were to use cash to pay off the commercial paper, reserves would be significantly narrowed to a reported 10 days’ cash on hand, according to Moody’s.
The senior debt of the San Antonio Water System is rated Aa1 with a stable outlook by Moody’s. It is rated AA, also with a stable outlook, by Standard & Poor’s.
