Standard & Poor's Ratings Services said it lowered its underlying rating on Upper Allegheny Joint Sanitary Authority, Pa.'s sewer revenue debt one notch to A-minus from A.
The outlook is stable.
The downgrade reflects Standard & Poor's opinion of the authority's weak financial performance, evidenced by its maintenance of very thin total debt service coverage ranging between 1.1x in fiscal 2013 and 1x in fiscal 2011.
At the same time, the rating service assigned its A-minus long-term rating and stable outlook to the authority's $9.795 million series 2015 refunding bonds.
In addition, Standard & Poor's believes total debt service coverage will likely remain thin due to additional borrowing requirements related to the authority's long-term control plan to reduce combined sewer overflows.
"We believe authority management will likely adjust rates regularly to preserve at least sufficient debt service coverage," said Standard & Poor's credit analyst Scott Sagen. "If management is unwilling to adjust rates as it determines capital costs, or if financial metrics were to deteriorate further, we could lower the rating. Due to the system's weak financial performance and additional debt requirements, however, we will likely not raise the rating over the outlook's two-year period."
Net sewer system revenue secures the bonds. Standard & Poor's understands officials intend to use series 2015 bond proceeds to refund the authority's series 2010 bonds for cost savings. The series 2015 bonds will be on parity with the series 2012 and 2011 bonds. Officials indicate they have not entered into any direct-purchase bank debt.
