NEW YORK - Standard & Poor's Ratings Services said it raised by one notch, to BB-plus, the underlying rating (SPUR) on the New Orleans Sewerage & Water Board, La.'s water revenue bonds. The outlook is positive.

"We expect the division's pace of financial and operational recovery to be sustainable, possibly even at an accelerated rate," said Standard & Poor's credit analyst Theodore Chapman. The water system has about $34.6 million in revenue bonds outstanding.

As early as July 2012, the recommendations of a comprehensive 2012 rate study could be approved. If approved as recommended, it would include multiyear rate adjustments that would bolster debt service coverage (DSC) to 1.7x or better, even with significant additional debt.

The rate increases would allow the water division to fully repay the sewer division within S&P’s two-year outlook horizon.

Post-Katrina, the water division at times has relied on interfund borrowings from the sewer system for working capital, although not to pay debt service.

Should the water division's financial position prove to be sustainable, to the point that its cash flows will no longer be dependent on nonrecurring revenues or interfund borrowing from the sewer department, a return to an investment-grade rating would be likely.

The positive outlook reflects S&P’s expectation that the rate study recommendations, a supportive relationship with the state and federal counterparts, and the continued addition of new accounts will help the system maintain consistently improved DSC and working capital.

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