CHICAGO — Standard & Poor's downgraded Higginsville, Missouri's 2010 sewerage system revenue bonds three notches to the lowest investment grade level over its weakened fiscal position.
The rating was lowered to BBB-minus from A-minus Oct. 16. The bonds are secured by net revenues of the system. The agency warned of the potential for future negative action by assigning a negative outlook.
"The downgrade reflects the system's continual use of cash to meet its obligations during fiscal years 2012 and 2013," said Standard & Poor's analyst Corey Friedman.
The outlook reflects analysts' view that the city's structural deficit will persist in fiscal years 2014 and 2015 without corrective action to address it.
The rating reflects annual debt service coverage of less than 1 times in fiscal years 2012 and 2013 which required the city to use cash to help meet its obligation, adequate but below average income levels, and high debt to plant ratios. The system has limited capital needs and a stable service base in its favor.
"If the city is able to show, at a minimum, sufficient coverage of debt service from recurring revenues, we could revise the outlook to stable," analysts said. Higginsville plans to raise rates at the beginning of 2015.
