Standard & Poor's Ratings Services has lowered its rating on the Water Works Board of the city of Brewton, Ala.'s water revenue debt three notches to BBB from A.
The outlook is stable
"The downgrade reflects what, in our opinion, is the board's weakened overall general creditworthiness, as reflected by a declining financial risk profile post fiscal 2011," said Standard & Poor's credit analyst Alexander Vargas.
Due to a sudden increase in materials and supplies related to water line replacements coupled with a decline in water sales, which management attributes to wet weather conditions and faulty meters, available net revenues and available liquidity have declined significantly. As a result, debt service coverage (DSC) has been thin to inadequate since fiscal 2012.
The rating reflects the system's DSC levels, which have remained weak to inadequate since fiscal 2012 coupled with liquidity, which has declined 25% since 2011; failure to take corrective action following a trend of declining financial performance; and lack of formal financial policies, financial forecasts, and capital improvement plan.
These weaknesses are partially offset by the system's stable and diverse customer base, although with a shallow local economy that demonstrates weak demographic characteristics; recently implemented sizable rate increase; and expected significant increase in operating revenues following a replacement of the majority of the system's water meters, which management faults with significantly underreporting water usage.
