Moody’s Investors Service downgraded Cottonwood, Ariz., Municipal Property Corp. water enterprise’s senior-lien debt obligations to Baa1 from A3, affecting $34.6 million of outstanding debt.
The bonds are secured by the lease-purchase payments made by the city of Cottonwood from net water utility system revenues.
The Baa1 rating and downgrade reflects the city’s weakened financial position, which has contributed to violation of the rate covenant for two consecutive years and a decline in the city’s cash margins.
The Baa1 also reflects the essentiality of the service, stable customer base, weak debt ratio, and reluctance to raise rates to generate adequate net revenues for the payment of debt service.
The removal of the negative outlook reflects management’s commitment to increase coverage levels to comply with the rate covenant through expenditure cuts and rate increases over the next couple of years.
