Moody’s Investors Service has placed Springfield’s A1 senior-lien electric revenue bond rating under review for a downgrade due to a significant narrowing of the utility’s financial position that resulted in a debt covenant violation for fiscal 2012.
The action affects $622 million of the Illinois capital’s rated electric utility debt.
Debt service coverage for the fiscal year that ended at the close of February is expected to fall short of the 1.25 times required under the rate covenant, according to unaudited results.
“The weak financial performance is due to a historical unwillingness to raise rates coupled with narrower margins derived from wholesale power sales, given the weak power markets that are expected to remain soft,” Moody’s wrote.
The review was also prompted by the utility’s even weaker liquidity position, with a decline in available cash resulting in its draw on a bank line of credit for $2.2 million.
Springfield did raise base rates in March and approved a smaller rate increase for next March. It has also authorized $7.5 million in budget cuts.
“Resolution of the review will reflect Moody’s evaluation of the utility’s financial position moving forward balanced against the increased political risk that has been demonstrated, given the city’s reactionary approach to managing its finances,” the agency wrote.
Moody’s warned that a multiple-notch downgrade could occur once it completes its review in the next month.
