Standard and Poor's: Infrastructure Remains Stable

Three Standard and Poor's analysts speaking in the wake of federal sequestration cuts said that public power utilities, water and sewer entities, and the transportation sector should all remain fairly stable for the next year despite a number of pressures.

"Our ratings will remain strong and steady over the next 12 months," said public power analyst Jeff Panger.

Panger said public power utilities continue to benefit from low-cost natural gas released by hydraulic fracturing.

"This should help stabilize electric rates, as well as financial results," he said.

But public power utilities still remain at risk from gasoline price volatility, as well as the possible implementation of more Environmental Protection Agency regulations on the use of coal for power. Besides that, Panger said he remains concerned for the nascent economic recovery.

"We're wary that the recovery could be easily derailed," he said.

Water and sewer utility analyst Ted Chapman said that sector is not prone to heavy risk, though he also warned of long-term pressures related to the fact that water utilities will need to spend many billions of dollars over the next decade just to upgrade and maintain existing infrastructure. Droughts that have wracked the Midwest and south are also a concern, but are not likely to hurt the sector broadly because of the "decentralized" nature of water utilities, he concluded.

Chapman added that federal legislation pending, including the possible creation of a water infrastructure financing program modeled on the Transportation Infrastructure Finance and Innovation Act, are not likely to affect credits.

Transportation infrastructure, although stable, faces quite a few pressures, said analyst Peter Murphy. Uncertainty surrounding federal policy, rising capital needs, budget pressure, and the sluggishness of the economic recovery are all potential negatives. He also warned that resolving any of those problems would not result in upgrades.

The impact of sequestration, Murphy said, will likely be felt mainly at airports and ports where cutbacks in federal staff will reduce the ability to process cargo and passengers. Those are drivers of credit for both ports and airports. Most metrics measuring transportation sector health still remain below pre-recession levels, including airport enplanements. Despite that however, only 1% of Standard and Poor's transportation portfolio is junk-rated, Murphy said.

Murphy said grant anticipation revenue vehicle, or Garvee, bonds will continue to remain at risk because of the uncertainty of federal gas tax revenues. The previous reauthorization of federal highway programs last summer became a messy partisan battle.

"We believe that going forward, reauthorization will remain contentious," Murphy said.

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