BRADENTON, Fla. — Standard & Poor’s yesterday affirmed its A-minus rating, with a stable outlook, on the Prichard Waterworks and Sewer Board in Alabama.
The board sold approximately $25 million of revenue bonds in May last year, and about five months later the city of Prichard filed for municipal bankruptcy — for the second time in a decade.
In affirming the WSB’s rating and stable outlook yesterday, Standard & Poor’s analyst Edward McGlade noted that the board is a separate, stand-alone entity from the city that is protected under Alabama state statutes as a special-purpose district.
“The city of Prichard filed for bankruptcy protection on Oct. 17, 2009, and it is Standard & Poor’s opinion that the city cannot and will not force the board to file for bankruptcy protection,” McGlade said.
The five board members that have sole authority to establish water and sewer rates are appointed by the Prichard City Council, and the WSB is a public corporation as well as an enterprise fund, according to bond documents.
“The board does not expect a financial impact from the city’s bankruptcy filing,” McGlade said. “The board’s failure to continue raising rates to maintain the recently achieved financial coverage levels and a return to poor operation characteristics are more likely to affect the rating than the city’s bankruptcy filing.”
McGlade said the WSB’s stable rating outlook reflected the expectation that management would continue proactively approving rate increases to maintain debt service coverage above 1.15 times.
The 2009 bonds sold with serial maturities between 2010 and 2021, and with term bonds due in 2024, 2029, and 2035. The serial bonds sold with yields of 1.4% in 2010, 3.15% in 2015, and 3.95% in 2021.
In addition to the bonds sold last year, the board also sold approximately $28 million of water and sewer refunding bonds in 2005, which also are rated A-minus by Standard & Poor’s.
The city of Prichard filed for bankruptcy last year, claiming it was burdened with millions of dollars in unfunded pension obligations.
The city first filed for bankruptcy in 1999 and emerged two years ago after paying related debts.
But in a recent federal bankruptcy court filing, the city’s attorneys said that since 1999, “Prichard’s economic fortunes have continued to decline and it finds itself unable to adequately address all of its outstanding financial obligations.”
The city’s complaint reported that its net revenues in fiscal 2009 were $10.1 million while its net operating expenses were $10.7 million in addition to an underfunded pension plan plus $700,000 owed to creditors.
The city reported to the bankruptcy court that it had no outstanding long-term debt.
Prichard is a 25-square-mile city in southern Alabama with a population of approximately 25,000 people. It is the second-largest city in Mobile County.