DALLAS – The sister cities of Midland and Odessa lead a list of 11 local issuers in Texas oil producing regions that could see ratings downgraded by Moody's Investors Service.
The potential downgrades affect about $477 million of outstanding debt from all the issuers combined, said Moody's analyst Julie Meyer.
"Local governments with significant tax base exposure to the oil and gas industry face ratings pressure with oil prices falling to multi-year lows," Meyer wrote Friday, when Moody's placed the issuers on review for downgrade. "We expect industry conditions will remain weak as the ongoing imbalance between global oil supply and demand will continue weighing on prices."
While futures for West Texas Intermediate crude fell as low as $27 per barrel earlier this year, the commodity was trading about $10 higher on March 7 after a sustained rally.
Nevertheless, the supply of oil is so great that the industry is struggling to find adequate storage capacity.
Midland and Odessa are two neighboring cities in the heart of the Permian Basin of West Texas, the state's historic oil producing region. Moody's rates Midland Aa1 and Odessa Aa2.
Also on the list are Pecos County, rated A2, Normangee Independent School District, rated A2, and seven hospital districts.
The hospital districts and their current ratings are: Iraan General Hospital District, A2; McCamey County Hospital District, Baa2; Midland County Hospital District, TX, Aa2; Nolan County Hospital District, A3; Reagan Hospital District, Baa2; Scurry County Hospital District, A1; and Seminole Hospital District, A1.
In addition to the lower oil prices that affect the general economy and government revenues, rural hospitals in Texas are suffering from lost Medicaid funding. Texas refused to accept federal funds for Medicaid expansion, which would have covered the working poor.
Certain issuers in the Eagle Ford shale region of South Texas and Permian Region in West Texas benefitted from rapid tax base expansions during the boom in oil production between 2010 and 2014, Meyer noted.
"Those that expanded services and debt issuance face a stressed operating environment as assessed values contract and local operators slash capital spending and cut workforces," she said.
"This ratings review will focus on individual issuers' ability to adjust to the industry downturn, considering the degree of economic concentration and credit quality characteristics such as liquidity, debt burden and management strategy," Meyer said. "Reliance on revenues that are sensitive to rapid changes in the industry, such as property and sales taxes, will also factor into our assessment."
