Standard & Poor's Ratings Services said it raised its rating on the North Fort Bend Water Authority, Texas' water system revenue bonds by two notches, to A-plus.

The outlook is stable.

"The upgrade is based on our opinion that the authority has matured past its start-up phase and will be able to generally sustain an alignment of revenues and expenses without the use of certain cash balances, even net of capitalized interest or a Build America Bond subsidy from one series of outstanding bonds," said Standard & Poor's credit analyst Theodore Chapman. The upgrade affects approximately $283.5 million of revenue bonds.

The rating reflects the authority's general creditworthiness, including: the relative lack of development of some of the 69 municipal utility districts (MUDs) served by the authority, with either modest tax bases or a small number of customer connections that ultimately provides revenues to the authority. For most MUDs, their key revenue source is an ad valorem property tax; and flexible legal provisions that allow for certain cash balances to be considered available for debt service and to meet the additional bonds requirements.

Factors which moderate these concerns include: the authority was well ahead of schedule in its requirement to comply - by 2013 - with a groundwater conservation district's mandate to reduce pumpage; the critical need for the project given the regulatory mandate and force of law of the overriding groundwater conservation district; and the aggregate strengths of the participants, which generally include well managed rates and directions of development, high but manageable debt levels, and a stable growing residential sector that has seen at worst only modest valuation declines through the recession.

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