Moody's downgrades Corpus Christi's ratings over water woes

Bloomberg News

Moody's Ratings downgraded Corpus Christi's bond ratings on Thursday, citing a looming water supply crisis and a tight timeframe to head it off.

The Texas city's general obligation and sales tax revenue bond ratings were dropped to A1 from Aa2 and its combined utility enterprise bond rating was cut to A1 from Aa3. The lowered ratings were assigned negative outlooks by Moody's, which said the city has about $2 billion in total debt outstanding.

"The downgrade reflects increased credit risks to the city's economic, financial, and leverage profiles associated with the unexpected acceleration of water depletion risk and the narrow window to implement solutions before November 2026, which could trigger a Level 1 Emergency, indicating 180 days until its water supply will be insufficient to meet demand," Moody's said in a statement.

The downgrades followed a review the rating agency launched in September after the Corpus Christi City Council halted plans for an Inner Harbor Water Treatment Campus project, which would be the first seawater desalination plant for municipal use in Texas.

"While we acknowledge Moody's decision to downgrade our credit ratings, we want to assure our residents and investors that the city is fully committed to aggressively addressing the need for water supply diversification," Corpus Christi City Manager Peter Zanoni said in a statement. "The report clearly underscores the urgency of our ongoing efforts, including the pursuit of seawater desalination, Evangeline Aquifer groundwater access in Nueces and San Patricio Counties, and water reuse projects."

The city council took an initial step last month to revive the desalination project it cancelled as the estimated price tag climbed to nearly $1.2 billion by approving a memorandum of understanding with a new design-build team, which is tasked with producing proposals early next year at no cost to the city.

Other recent action taken by the council to boost water supplies, includes agreements to procure groundwater and to secure 50 million gallons of water daily from the Nueces River Authority's proposed seawater desalination plant, as well as an $11 million deal to design a major expansion of the city's reclaimed water infrastructure. Last week, the city announced a residential water rate increase.

Moody's acknowledged Corpus Christi's efforts, while noting "the city has little margin for delay."

"The magnitude of water stress makes curtailment of industrial operations — a key driver of the regional economy and dependent on the city's water supply — more likely," the rating agency said. "Failure to successfully implement solutions could exert significant economic and financial strain and considerable downward pressure to the city's credit profile."

In October, Fitch Ratings and S&P Global Ratings revised their outlooks on Corpus Christi's utility system revenue bonds to negative from stable, signaling concerns over the city's ability to boost its water supply. 

Corpus Christi Water, which is the primary water supplier for a seven-county region, expected the seawater desalination plant to produce up to 36 million gallons of potable water daily. The area is experiencing stage three drought conditions that triggered water-use restrictions. 

A water supply dashboard on the city's website indicates two western reservoirs will be depleted during the first half of 2027.