Moody's Investors Service said it has downgraded to A1 from Aa3 the rating on the city of Jackson, Miss.'s water and sewer system revenue bonds affecting $154 million in previously issued debt.
At the same time, Moody's assigned an A1 rating to the city's $90 million Mississippi Development Bank special obligation bonds, Series 2013 (city of Jackson, Miss., water and sewer system revenue bond project). The outlook remains negative.
The rating takes into consideration approximately $11 million in state revolving loan funds (SRLF) which are not rated by Moody's. Proceeds from the sale of the bonds will be used to enhance the system's billing including replacing all commercial and residential water meters which is expected to create efficiencies and increase revenues for the system.
The downgrade reflects sustained weak management practices evident in well below median debt service coverage ratios, increased leverage position, and worse than anticipated 2012 coverage.
The negative outlook reflects the system's lack of proactive financial planning to manage the $400 million consent decree. Although officials report that the system maintains some flexibility including a local sales tax option, poor planning and unimproved financial metrics are not typical of the Aa3 rating, reflected in the downgrade.
The negative outlook also reflects uncertainties regarding the financing for consent decree related projects, and additional risk posed to system expenditures associated with a swap agreement and system's outsized water loss.
The A1 rating reflects the system's sizeable customer base, economic stability provided by intuitional presence, limited concentration in top rate payers, and adequate, albeit declining system liquidity.
