Moody’s Investors Service downgraded Springfield, Ill.’s senior-lien electric revenue bonds two notches and assigned a negative outlook.
The agency lowered the rating to A3 from A1, concluding a review launched last month. City Water, Light and Power has $622 million of outstanding senior-lien debt.
“The downgrade to A3 is primarily based on the city’s demonstrated unwillingness to increase electric rates sufficient to maintain adequate financial metrics during its recent financial deterioration,” the agency wrote.
The utility experienced a covenant violation that required a $2.2 million draw on a revolving bank line of credit at the close of fiscal 2012 in February.
“In Moody’s opinion, the violation of a rate covenant for an essential purpose enterprise is a serious negative credit factor,” analysts wrote.
The city approved a two-year base rate increase and made some non-recurring expense cuts just before the end of fiscal 2012. To raise rates, the utility’s general manager and the mayor must allow CWLP to appear before the City Council and request an increase.
The previous mayor, the interim mayor and the previous appointed general manager had blocked the utility’s requests for increases for the last three years. The new mayor allowed the recent rate request process to go forward.
The negative outlook reflects concerns that CWLP could be forced to begin repaying an outstanding $6.25 million draw on its operating bank line of credit because its rating is now below the trigger for termination, though it does have a long-standing relationship with the bank, analysts said.