Moody's Investors Service said it has downgraded to A2 from A1 the rating on the Municipal Authority of the city of McKeesport, Pa.'s sewer revenue bonds, affecting $76.2 million of sewer revenue debt outstanding.
Moody's assigned an A2 rating to the authority's $14 million sewer revenue bonds, Series of 2013.
The bonds are secured by a senior lien pledge of gross revenues of the authority's sewer system. Proceeds of the current issue will be used to refund portions of the authority's Series of 2010 and Series of 2011 bonds for an estimated debt service costs savings of $750,000 in fiscal 2013 and $250,000 in fiscal 2014 and 2015.
The current financing also extends the maturities of the portion of Series 2010 bonds being refinanced to 2041 from 2032.
The downgrade of the rating to A2 from A1 reflects the added risk to bondholders posed by the authority's likely entry into a cooperation agreement with the city of McKeesport that will require sizeable annual transfers to the city for several years, projected weaker-than-anticipated fiscal 2012 performance, and Moody's expectation that the audited financials for fiscal 2012 and 2013 will reflect a significant weakening in coverage levels.
The A2 rating also factors the primarily residential service area's stable customer base, adequate legal security provisions, healthy historic coverage levels that are expected to weaken in the near-term, and a high debt burden.
