Standard & Poor’s last week stripped the Xenia Rural Water District’s 2006 revenue bonds of their investment-grade standing, lowering them to BB from BBB, and warned of further action due to the district’s struggles to meet debt service.

The rating agency said the outlook is developing. “The downgrade reflects the district’s deteriorating financial position, which necessitates the use of the district’s debt-service reserve to sufficiently cover the system’s outstanding water debt,” wrote analyst Corey Friedman.

The district is strained by low liquidity levels and high leverage that has forced it to dip into its reserve fund to meet debt-service requirements. Its strengths include serving an area that is close to Des Moines, a growing service base, and a bountiful water supply.

Analysts assigned a developing outlook because the district is looking at a range of options, including raising utility rates, budget cuts, and seeking a forbearance on some of its senior debt. It also could be acquired by another, higher-rated entity.

“We could raise the rating if the district’s actions are able to adequately address its structural imbalance,” Friedman said. Absent attempts at progress, a negative outlook could result.

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