BRADENTON, Fla. — Moody's Investors Service downgraded the revenue bonds sold by the Douglasville-Douglas County Water and Sewer Authority, Ga., to Aa3 from Aa2 because of its weak reserves and declining consumption.
The lower rating affects $151.7 million of outstanding debt, Moody's said Aug. 12. The bonds are secured by a senior and subordinate liens, and pledge of net revenues of the authority's water, sewer, and stormwater system.
The downgrade to Aa3 reflects a relatively weak reserve position relative to the authority's peers, declining consumption, and somewhat weak legal provisions, said analyst Sarah Jensen. The rating also incorporates the system's large size, sufficient capacity, long-term planning, and satisfactory coverage.
The Douglasville-Douglas County authority "continues to maintain weaker reserves than its peers, though this reserve position is satisfactory given limited capital needs," Jensen said.
As of fiscal year 2013, the authority's unrestricted cash position of $1.9 million was a "very narrow" 9.5% of operating and maintenance expenses. Net working capital, which includes a $9 million capital reserve fund available for emergencies or capital needs, is a stronger at $13.9 million or 68.8% of O&M.
"This reserve level is significantly weaker than national medians and is a key factor in the downgrade," said Jensen. "Officials do not report plans to build up reserves given intentions to utilize excess annual revenues for ongoing capital projects."
In 2013, system revenues were $19.4 million. Debt service coverage remained an adequate 1.59 times annual debt service and 1.58 times maximum annual debt service, the rater said. The current debt ratio of 36.9% is slightly above average compared to other similarly rated systems but remains manageable given limited future issuance plans.
Moody's also said legal provisions are weak compared to peers. The rate covenant requires rates sufficient to provide 1.1 times annual debt service.
The authority, located about 20 miles west of Atlanta in Douglas County, has sufficient water and sewer capacity for future needs. The system is sizeable with net fixed assets of $407 million, and serves a primarily residential customer base within the county with those accounts representing about 94% of connections.
Consumption has fallen 18% since 2007 and is largely attributed to continued conservation efforts following a 2007 drought and the loss of a wholesale customer.
"Officials report that development has begun to pick up again following the recession but still budget for limited growth over the next five years," Jensen said.