Standard & Poor's Ratings Services said it raised its rating to B-minus from CCC-plus on Aliceville Governmental Utilities Services Corp. (GUSC), Ala.'s series 2011 bonds, issued for its Federal Bureau of Prisons (FBOP) project, and removed the rating from CreditWatch with developing implications.
The outlook is stable.
"The rating actions are based on our expectation that the January 2015 agreement that ended a rate dispute between the GUSC and FBOP will gradually restore GUSC's financial risk profile," said Standard & Poor's credit analyst Theodore Chapman.
The rate dispute led to a shortfall of operating revenues. As a result, from August 2013 and at each six-month debt service payment date through August 2014, the GUSC had to draw from the debt service reserve fund (DSRF) to make timely and full payments on the bonds.
In January 2015, the GUSC and FBOP reached an agreement to amend the existing water and sewer service contracts, whereby the bureau began paying the amount billed by the GUSC, as well as an additional surplus that will fully restore the required reserve amount in the next three years. The agreement also enabled the GUSC to meet its Feb. 1, 2015, interest payment date solely from cash from operations and without any further use of the DSRF, which had by that point been nearly depleted.
The corporation issued the bonds to fund the construction of water and sewer facilities for a federal correctional institute near the city of Aliceville in southwestern Alabama.
By Standard & Poor's calculation, the DSRF's current balance fell to less than $55,000 in 2014, which wasn't enough to cover the Feb. 1, 2015, interest payment. With the rate dispute resolved in January 2015, GUSC was able to make that scheduled payment, with the assumption that the remaining semiannual payments could be made solely from cash from operations and without lingering doubts.
