Utility Bonds Power Down

Moody’s Investors Service downgraded to A2 from Aa3 its rating on Indianapolis’ gas utility system subordinate and second-lien revenue bonds, while at the same time removing from its watch list for a possible downgrade the utility’s senior-lien gas revenue refunding bonds. The downgrade reflects the Citizens Gas and Coke Utility’s failure during 2005 and 2006 to provide one-times debt service coverage on $170.9 million of outstanding subordinate and second-lien bonds issued in 2001 and 2003. Debt service coverage on the distribution system bonds was 0.84 times in 2005 and 0.79 times in 2005, with a preliminary coverage of 1.57 times in 2007. However, the strength of future debt service coverage ratios depends in part on rate approval that must be given by the Indiana Utility Regulatory Commission. Financial pressures in 2005 and 2006 stemmed partly from the 22-month period that passed before the commission approved a 3.6% rate increase late last year. Along with other factors, a policy to establish new rates every three years should stabilize debt service coverage and cash flow, analyst Dan Aschenbach wrote in a recent report. Moody’s removed from its watch list roughly $166.6 million of outstanding senior-lien revenue bonds, reflecting in part the utility’s service area, including Aa1-rated Indianapolis and Marion County, new rate policies, and limited borrowing plans. There is a debt service reserve for the senior-lien bonds funded at the average annual debt service, and no reserve for the subordinate-lien bonds. The utility carries a total of $336 million of outstanding debt rated by Moody’s.