The revenue bonds of Central Alabama Water, until recently known as Birmingham Water Works, were downgraded to AA-minus from AA by S&P Global Ratings, citing weakening liquidity and aging assets. The agency also put the bonds on CreditWatch Negative.
The water utility had $1.104 billion in liabilities of which $967 million was bond debt, as of Dec. 31, 2024, according to its annual comprehensive financial report.
S&P said the utility has had declining reserves and increasing capital needs in recent years.
A recent state law, Act 2025-297, ordered a restructuring of the water system's governance,
S&P said the change in management may lead to improvements but led to delays in adopting the fiscal 2026 budget and getting firm 2025 financial figures.
The utility has since adopted a 2026 budget but has plans to revise it, S&P said.
The CreditWatch Negative placement "reflects at least a one-in-two chance that we could lower the rating during the next 90 days depending on our receipt of operational and financial updates and information regarding CAW's future financial and capital planning," S&P said.
If the updates aren't forthcoming it "will likely withdraw the rating due to insufficient information," the rating agency said.
"We have already taken steps to improve our financial position and will continue to do what is necessary to create a world-class water utility that our customers can trust," said Jeffrey Thompson, CEO of Central Alabama Water.
CAW's predecessor organization exceeded its operating expense budget for multiple years while allowing unbilled and lost water to grow to high levels, CAW said in a written statement.
In November the new management paused the Lake Purdy Dam project, CAW said. The leaders expect to present revised operating and expense budgets that will ensure long-term financial stability in March.
The utility's bonds are rated Aa2 by Moody's Ratings.
