DALLAS — Standard & Poor’s last week put the Bexar Metropolitan Water District’s underlying A rating on negative watch, as the San Antonio-area utility needed a $10 million loan to cover debt service.
About three weeks ago, Moody’s Investors Service placed the A3 credit on its watch list for possible downgrade.
Finance director Jesse Morin said the district restructured four rates last March into a uniform structure to be more in line with regional purveyors and to include conservation surcharges, as instructed by the board. The new rates took effect June 1. But then “the more fixed structure” of the new rates hurt the district’s financials after a “really wet summer season,” Morin said.
Analysts said the disclosure that revenue is insufficient to fulfill covenanted monthly payments to the interest and sinking fund, resulting in a shortfall in the fund, constitutes a technical default that prompted the negative watch.
“The district hasn’t missed any debt-service payments and hasn’t defaulted on any of the debt coverage ratios,” said Michael Villarreal, managing director at Samco Capital Markets, the district’s financial adviser. “They’ve not gone over budget. The district simply didn’t make roughly equal deposits into their debt fund.”
Morin said the district will hold the first of four public hearings Tuesday to discuss rate increases to get the district back in compliance with debt covenants. The board is expected to vote on the rate increase at its April 30 meeting.
“The district’s willingness to adopt the necessary rate adjustments to meet its obligations with operating revenues will be a key determinant of its future credit quality,” said Standard & Poor’s credit analyst Horacio Aldrete-Sanchez.
The district issued $10 million of taxable revenue notes through a private placement with Bank of America last month, Morin said. The note are payable May 1, 2011, and noncallable, according to analysts.
Morin said $6 million of the proceeds will be used to meet debt service requirements for May 1, while the remaining $4 million will be placed in a reserve fund.
Morin said the district doesn’t have any new-money debt issues planned, but does have $20 million remaining under a commercial paper line of credit that it may take out to longer maturities this summer.
Due to the ratings change on the district’s debt, Standard & Poor’s also put the A underlying rating of the Bexar Metropolitan Development Corp. Series 1998 water facility contract revenue bonds and Canyon Regional Water Authority’s contract revenue debt on negative watch.
Analysts said a pledge on lease payments from a water treatment plant to the district secures the development corporation’s bonds, while the Canyon Regional authority’s rating is “based on the strength of its largest participant,” which is the district.
The Standard & Poor’s action applies to a total of $238 million of waterworks system revenue debt outstanding.
Fitch Ratings rates the credit of Bexar Metropolitan Water District at A-minus with a stable outlook. In July, Fitch downgraded the district to A-minus from A, citing poor liquidity as a major credit concern.
The Bexar Metropolitan Water District provides water to about 86,000 residential and commercial customers in parts of Bexar, Atascosa, Medina, and Comal counties. San Antonio is in Bexar County.