Standard & Poor's Ratings Services said it raised its rating on the former Bexar Metropolitan Water District (Bexar Met), Texas' waterworks system revenue debt to A-plus from A.
The outlook is stable.
"The upgrade is based on the ongoing efficiencies realized by Bexar Met's 2012 merger with the city of San Antonio's water system (SAWS), which, in our opinion, continues to benefit Bexar Met's financial risk profile," said Standard & Poor's credit analyst Theodore Chapman.
From a financial reporting standpoint, Bexar Met's results are reported within SAWS' annual financial statements as a separate component unit called "the district special project" (DSP). SAWS customers are not subsidizing the former Bexar Met customers nor has SAWS assumed Bexar Met's existing financing obligations (such as its long-term debt or contractual commitments to the Canyon Regional Water Authority [CRWA]). The 2011 enabling state legislation established a five-year integration period, beginning with the 2012 election certification by the U.S. Department of Justice.
It could therefore be 2017 before SAWS assumes Bexar Met's debt. SAWS in August 2012 called the outstanding bonds associated with a lease by Bexar Metropolitan Development Corp. (BMDC), thereby ending any DSP obligations to the BMDC.
The rating on the CRWA's bond is based on the strength of its largest participant, the former Bexar Met, and the participant contract's joint and several nature.
SAWS acquired Bexar Met's approximately 96,000 customers in and around San Antonio in a 273-square-mile service area that includes Bexar and Atascosa counties.
"The stable outlook reflects our expectation that expected reductions in administrative and other duplicative costs brought about by being under the umbrella of SAWS' management team will allow the more consistent financial and operating profiles to be sustainable over our two-year horizon," said Chapman.
The agency currently does not anticipate that SAWS will assume Bexar Met's obligations--which would put the Bexar Met ratings on par with the rating on SAWS' debt--which would be the main factor that would lead to a higher rating. Conversely, it does not view there to be downward pressure on the rating during the outlook horizon.
