DALLAS — Moody's Investors Service warned that 10 local bond issuers in Texas are vulnerable to credit downgrades because of their dependence on oil production.
The 10 issuers are located in the Permian Basin production area of West Texas and the Eagle Ford Shale of South Texas.
The review for downgrade affects about $800 million of debt, Moody's said.
"We believe a combination of economic and financial factors make the general obligation ratings of these local governments particularly vulnerable to an extended period of low oil prices," analysts Nathan Phelps and Tim Blake wrote.
Key factors in the reviews include changes in property values and total debt outstanding during the recent period of rapid growth in the energy sector, tax base concentration in oil and gas mineral values, and employment concentration in the oil sector, they noted.
"Other factors considered include budgetary reliance on local property taxes and economically sensitive sales taxes and financial reserves available to buffer against a downturn in revenues," they said.
Four of the credits are in Midland County, considered the financial capital of the Permian Basin.
They are the city of Midland, rated Aa1; Midland Independent School District, rated A1; Midland County Hospital District, rated Aa2; and Aa2-rated Midland Community College District.
The others are: A1 rated Carrizo Springs Consolidated Independent School District; Cuero Independent School District, rated A1; Glasscock County Independent School District, rated Aa3; Levelland Independent School District, rated A1; Wink-Loving Independent School District, rated A1; and the A1-rated Andrews County Hospital District.
Despite sharp reductions in employment and drilling activity, the oil glut continued to grow in the U.S. in February.
Crude oil in storage in the U.S. jumped 2%, to 434 million barrels, according to Energy Information Administration weekly data released Feb. 25. The increase of 8.43 million barrels was more than double the median estimate in a Bloomberg survey of analysts and was the biggest increase in a month.
With oil prices down 50% from their 2014 highs, inventories remain at their highest levels in at least 80 years, according to an analysis by Bloomberg Intelligence.
The city of Midland, with a population of 121,000, led all 380 U.S. metropolitan areas in economic expansion from 2010 to 2013, according to the Bureau of Economic Analysis. Unemployment in December was 2.1%, less than half the national average.
However, signs of economic decline have begun to appear in 2015. Private aviation at the Midland airport was down 9% in January, according to Bloomberg.
