Standard & Poor's Ratings Services has revised its outlook to positive from stable on El Paso Water Utilities Public Service Board, Texas.
Standard & Poor's affirmed its rating on the board's utility debt outstanding. Standard & Poor's also assigned its AA long-term rating to the board's series 2012A water and sewer revenue refunding and improvement bonds.
"The outlook revision reflects the potential for a higher rating should coverage grow to meet management's projected and targeted levels, while liquidity continues to trend higher," said Standard & Poor's credit analyst James Breeding.
Standard & Poor's also affirmed its A-1-plus short-term rating on the city's series A water and sewer commercial paper notes based on the water and sewer system's long-term creditworthiness and additional liquidity provided by a revolving credit agreement with JPMorgan Chase Bank.
The credit agreement with JPMorgan was renewed in 2011 and now extends to Feb. 22, 2013. The total amount of the CP program is $40 million. The city uses its CP program to provide funds for the interim financing of a portion of its capital improvement program. Typically, the city regularly issues refunding bonds to fix out the capital costs of its CP program.
The rating on the utility reflects our view of the system's: deep and stable area economy and customer base; strong projected debt service coverage (DSC) and liquidity levels; competitive rates, which management is willing to increase; and a large, five-year, $332 million CIP, which city officials plan to fund from a combination of debt issuance, cash on hand, and other revenues.
A pledge of net system revenues secures the bonds. Management will use bond proceeds to refund a portion of outstanding water and sewer revenue debt and make general system improvements.
The positive outlook reflects Standard & Poor's expectation for the board's continued strong financial margins, specifically related to debt service coverage and system liquidity. We don't anticipate the CIP, while significant, to cause a dilution in operating performance or position. Sustained high coverage levels in line with management's stated targets, coupled with a liquidity position that continues to strengthen, could result in a higher rating.
