Standard & Poor's Ratings Services has lowered its rating on Central Delaware County Authority (CDCA), Pa.'s series 2010 sewer revenue bonds two notches to A-minus from A-plus.
The outlook is stable.
"The downgrade reflects the authority's inadequate debt service coverage since fiscal 2010," said Standard & Poor's credit analyst Alexander Vargas. Officials have budgeted for less than 1x debt service coverage (DSC) and have used working capital to meet debt service requirements. Management has indicated that it will begin budgeting for at least sufficient coverage levels starting with fiscal year-end 2014.
The rating also reflects the authority's: strong economic indicators, including very strong income levels, which are bolstered by access to the broad and diverse Philadelphia metropolitan statistical area; strong liquidity position that has remained a strength despite drawdowns for debt service; and primarily residential and diverse customer base.
Offsetting these strengths is CDCA's: practice of budgeting for less than 1x DSC; high debt levels with plans to issue additional debt.
The stable outlook reflects Standard & Poor's expectation that recent rate increases to member municipalities will be sufficient to provide at least adequate DSC. The authority may decide to draw down cash reserves for capital improvements and should liquidity levels markedly decrease or DSC remain at insufficient levels, then it would likely lower the rating further. Given CDCA's recent history of weak financial performance and high debt levels with plans to issue additional debt, the agency does not expect upward rating mobility within the two-year outlook horizon.
