NEW YORK - Moody's Investors Service said it has downgraded Hernando County, Fla.'s water and sewer revenue bond rating to Aa3 from Aa2, affecting approximately $35.2 million in outstanding rated debt.
The revenue bonds are secured by the net revenues of the combined water and sewer system and connection fees.
Bondholder security is provided by a closed-loop flow of funds, a fully funded debt service reserve, and a sum-sufficient rate covenant and additional bonds test on a net revenue basis alone (110% of annual debt service including connection fees for rate covenant and 100% MADS including connection fees and fund balance for the additional bonds test).
The rating downgrade to Aa3 primarily reflects the system's weakened reserve levels, after cash-funding a large number of capital projects in recent years, and significant decline in pledged revenues, given material reductions in connection fees and investment earnings.
The Aa3 rating level also incorporates the system's relatively stable service base, satisfactory debt service coverage levels, as well a manageable debt ratio that is expected to increase in the near future.