NEW YORK - Standard & Poor's Ratings Services said it has revised the outlook on its underlying rating (SPUR) on Glendale, Ariz.'s subordinate-lien water and sewer revenue bonds to negative from stable. At the same time, Standard & Poor's has affirmed its AA SPUR on the bonds.
Standard & Poor's has also assigned its AA long-term rating to Glendale's $86.195 million senior-lien water and sewer revenue refunding obligations series 2012. The outlook is negative.
The outlook revision reflects several issues. "It is our opinion that the open nature of both the senior and subordinate liens could lower debt service coverage as additional bonds are issued within the next two to three years. It had been our understanding in the past that the city's "working" revenue lien would be the subordinate-lien," said Standard & Poor's credit analyst Scott Garrigan. "In addition, the fiscal 2012 budget includes a $15 million loan to the general fund that, if drawn, would lower the utility fund's cash position. While lowering the utility's 2011 fiscal year ending cash position by the full $15 million would still result in cash levels we consider strong, it would still be materially lower than cash levels historically maintained," he added.
The negative outlook reflects Standard & Poor's opinion that the rating on bonds issued under one or both of the liens could be lowered within the two-year outlook horizon. As additional debt is issued, the ratings could be lowered if debt service coverage trends lower and, in Standard & Poor's view, is no longer commensurate with the rating level. Also, depending on the amount of cash that is lent to the city's general fund, Standard & Poor's could lower the rating if cash levels decrease significantly.
The rating reflects Standard & Poor's view of the system's: large service area with a diverse ratepayer base; adequate water and sewer treatment facilities to handle demand, limiting additional capital needs; rates deemed affordable, especially given income levels at or near the national average; strong financial performance, in Standard & Poor's view; and limited additional debt needs.
A senior-lien on the city's water and sewer net revenues secures the 2012 bonds. The city will use the proceeds to refund existing bonds and notes.
Glendale is located Maricopa County, nine miles from downtown Phoenix. The city's population is about 250,000, with the water and sewer system serving about 61,000 and 57,000 customers, respectively. Most of the system's customers are residential.