Standard & Poor's Ratings Services said it lowered its rating on Lawrence, Ind.'s series 2007A and B waterworks revenue bonds three notches to BBB-plus from A-plus.
At the same time, Standard & Poor's removed the rating from CreditWatch with negative implications, where it was placed on May 1, 2014, for lack of timely information. Since then, Standard & Poor's has received sufficient information to determine a rating outcome. The outlook is stable.
"The downgrade reflects our assessment of the waterworks utility's financial performance, which we view as generally weak," said Standard & Poor's credit analyst Scott Garrigan.
The utility's operating and maintenance fund has been in structural imbalance since 2010, and as a result, the cash balance declined from $1.6 million at Dec. 31, 2009, to $206,000 at the end of 2013. This amount in 2013 represents just 20 days of operating expenses, below a requirement in the waterworks utility bond ordinance to maintain a balance of at least 60 days.
"The stable outlook on the rating reflects our expectation that within the two-year outlook horizon, financial operations in the water utility should become less volatile, given the various cost-saving measures already implemented," said Garrigan.
The outlook is supported by the underlying economic and financial factors, which the agency does not believe will deviate significantly from historical trends. The belief is supported by residents' access to employment throughout the Indianapolis area, which helps support the city's economic base.
If in the future, actual debt service coverage and unrestricted liquidity turn out to be materially weaker than what is currently in place, it could lower the rating. Conversely, it could raise the rating if financial operations stabilize, although this action could take place beyond the two-year outlook horizon if the financial metrics improve only slightly.
