Moody’s Investors Service downgraded Madison’s water revenue bonds one notch to Aa2 due to challenges facing the system that have hurt its liquidity levels.

The agency warned of further action by assigning a negative outlook.

The review came in conjunction with the city’s sale this week of $50 million of new-money and refunding bonds. It affects a total of $78 million of debt.

About $11 million will finance various projects and most will go to refund the system’s mortgage revenue bonds from 2001, 2002, 2003 and 2006. In refinancing the outstanding bonds, the city will lower its legal debt service and additional bond covenants under new covenants.

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