Moody's Investors Service said it has downgraded to Aa3 from Aa2 the rating on the city of Urbandale, Iowa's water utility revenue bonds, affecting $2.9 million of outstanding Moody's-rated debt.
The city has an additional $1.3 million of parity debt outstanding that is not rated by Moody's but is considered in the credit analysis.
The bonds are secured by a first lien on net revenues of the water system.
The downgrade reflects the weak coverage of total outstanding debt and commitments, including two years where total coverage dropped below sum-sufficient. The utility, however, maintains strong legal coverage (over 6 times) of outstanding revenue debt.
The rating further considers two years of improving operations driven by rate increases, limited but improving levels of unrestricted reserves and net working capital, and minimal additional borrowing plans.
