NEW YORK - Standard & Poor's Ratings Services said it revised its outlook to positive and affirmed its A rating on Bexar Metropolitan Water District (Bexar Met), Texas' waterworks system revenue debt. The rating was removed from CreditWatch with developing implications, where it was placed on Nov. 11, 2011.
"The positive outlook reflects the U.S. Department of Justice's validation of district voters' approval of a measure in November to dissolve the district," said Standard & Poor's credit analyst Theodore Chapman. The Justice Department's Jan. 27 approval was the final hurdle for the dissolution of the district's board. The Texas Commission on Environmental Quality will now oversee an approximately 90-day process for the official transfer of assets to the San Antonio Water System (SAWS), after which the district will be dissolved entirely.
SAWS assumed control of the operations and management of the Bexar Met system on Jan. 28. The acquisition by SAWS in the near term - likely in the next two years – will bolster net revenues available for debt service, as financial and operational efficiencies are expected to be realized under SAWS' strong management team. For example, Bexar Met has 331 budgeted full-time employees, 250 of which will become employees of SAWS. Given these synergies, the SAWS acquisition removes downside risk to the rating.
Under the enabling authorization, SAWS has up to five years to complete the full transition plan, which has been in the works for some time and was accelerated following the November 2011 election result. In the interim, Bexar Met will become a component unit or other type of stand-alone division of SAWS. SAWS customers will not subsidize existing Bexar Met obligations nor will SAWS immediately assume Bexar Met's debt or other obligations, such as lease obligations to Bexar Metro Development Corp. (BMDC) or Canyon Regional Water Authority (CRWA) by way of contract revenue bonds, both of which are also affected by S&P’s rating actions.
A pledge of lease payments derived from the lease of a water treatment plant to Bexar Met secures the BMDC's bonds. The rating on CRWA's bond is based on the strength of its largest participant, Bexar Met, and the participant contract's joint and several nature.
SAWS will be acquiring Bexar Met's approximately 95,000 customers in and around San Antonio, (AAA general obligation debt rating) in a 273-square-mile service area that includes Bexar and Atascosa counties. The district has historically served low- to moderate-income residential customers in outlying areas south of San Antonio. Over time, it has added additional areas, mostly noncontiguous, that are not served by SAWS, including some high-wealth subdivisions in San Antonio's northern extraterritorial jurisdiction.
