NEW YORK - Standard & Poor's Ratings Services said it revised its outlook to positive and affirmed its A rating on Canyon Regional Water Authority (CRWA), Texas' contract revenue debt. We removed the rating from CreditWatch with developing implications, where it had been placed on Nov. 11, 2011.

"The outlook revision reflects the U.S. Department of Justice's validation of Bexar Metropolitan Water District voters' approval in November of a measure to dissolve the district," said Standard & Poor's credit analyst Theodore Chapman. Bexar Met is the largest customer of CRWA's system and the one on which the rating is based. The Justice Department's approval in late January 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.

SAWS assumed control of the operations and management of the Bexar Met system on Jan. 28. The acquisition by SAWS will in the near term - likely within the next two years - bolster net revenues available for debt service, as financial and operational efficiencies are likely 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.

The rating on CRWA is based on the joint and several provisions of the water purchase contracts between the authority and its members. Because the authority can adjust rates whenever necessary to ensure it can meet all obligations, including debt service, we continue to base the rating of the authority mainly on the credit quality of its members, including what is deemed as its strongest member, Bexar Met.

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