DALLAS - Moody's Investors Service has shifted its outlook to negative on Austin's Aa2 water and sewer debt rating as the city prepares to issue $271 million of bonds in June.
"The negative outlook reflects a historically challenged financial profile that is expected to decrease materially at fiscal year end 2014," analysts Adebola Kushimo ?and James Hobbs wrote in their May 15 report. "Inability to improve the current liquidity levels will likely result in downward rating action."
On Austin's last issue of water and sewer bonds in 2013, Standard & Poor's rated the debt AA with a positive outlook.
The city's general obligation bonds are rated triple-A by both ratings agencies.
Austin has about $2.5 billion of outstanding water and sewer debt.
The system's capital needs are expected to be met with a combination of debt issuance and cash reserves driven by planned rate increases and continued demand, according to Moody's.
Over the next five years, the system's capital needs call for a total of $839.8 million of spending over the next five years with $365.8 million for water, $438.9 million for wastewater, and $35.1 million for reclaimed water.
The most recent increase averaged 5% for both the water and wastewater systems. A significant increase of 14.8% on the average for both systems is expected in fiscal year 2015. After that, planned increases average 3.2% annually through 2019, according to Moody's.
However, The system's liquidity position remains challenged and weaker than similarly rated credits, analysts said.
"Despite modest growth over the past two years, the liquidity position measured by unrestricted reserves is weak, averaging 12.4% of operating revenues over the past five years," they noted. "In fiscal year 2013, the unrestricted reserve was a thin 10.8%, with the net working capital slightly higher at 25.6%; both as a measure of operating revenues."
Weather is a major factor in the utility's fortunes, the analysts pointed out.
"Current estimates for fiscal year 2014 reflect a significant ($35 million) decrease in revenues due to decreased consumption attributed to conservation efforts from a stage two water restriction which has been ongoing during the two and a half year drought," they wrote.
