DALLAS — Moody’s Investors Service has declared the acquisition of the Bexar Metropolitan Water District by the larger San Antonio Water System a credit positive event for both utilities.
“The smooth integration of BexarMet into SAWS has established a favorable precedent for other potential integrations, especially considering the rarity that utility districts are dissolved or merged in Texas,” wrote Moody’s analyst Michelle Smithen.
A Texas district court in Travis County on March 5 issued a final judgment validating the dissolution of BexarMet and its merger with SAWS.
“The merger is credit positive for BexarMet bondholders, as new oversight by both SAWS and the city of San Antonio is expected to help resolve BexarMet’s financial and management challenges,” Smithen wrote. “The integration also benefits SAWS by providing it with additional water rights and capital cost efficiencies.”
Last June, the Texas Legislature passed SB 341, calling for a vote by BexarMet’s ratepayers to authorize the proposed merger. In November, ratepayers overwhelmingly approved BexarMet’s dissolution.
Through later court decisions, governance of BexarMet’s $242 million of revenue bonds was placed under SAWS management. A San Antonio city ordinance requires BexarMet’s operations, finances and debt service pledge to remain separate from SAWS’ operations for five years. After that and upon full integration, the two systems will report one financial audit, and the debt of both systems will merge under one revenue pledge and bond ordinance.
In recent years, BexarMet struggled to maintain consistent management, failed to meet rate-covenant requirements and demonstrated weak financial management practices, according to Moody’s. High water rates and management improprieties resulted in several attempts by politicians and ratepayers to dissolve the board.
SAWS gains BexarMet’s water rights to the Edwards Aquifer and an additional surface water source, which became increasingly valuable during San Antonio’s severe drought. SAWS has identified capital costs savings of at least $90 million from the acquisition of BexarMet’s infrastructure, with added cost savings expected.
BexarMet was formed 65 years ago to supply water to a non-contiguous service area in a small portion of Bexar County and to parts of three surrounding counties, serving approximately 92,800 connections. The much larger SAWS includes San Antonio and surrounds the BexarMet service area.