Standard & Poor's Ratings Services said it lowered its underlying rating on Wichita Falls, Texas' water and sanitary sewer system priority-lien revenue debt two notches to A from AA-minus.
The outlook is stable.
The downgrade reflects Standard & Poor's opinion of the system's weakened finances, evidenced by the significant decrease in liquidity to weak levels in fiscal 2014 and insufficient total debt service coverage after transfers into the general fund in fiscal years 2014 and 2013.
"Due to the system's weak financial performance, we do not expect to raise the rating," said Standard & Poor's credit analyst Scott Sagen. "If liquidity were to remain weak and if total debt service coverage were to remain inadequate, we could lower the rating beyond the outlook's two-year period."
Due to the system's significant water rate increase in 2014 and the recent removal of all drought water restrictions on June 16, 2015, because of wet weather, Standard & Poor's believes debt service coverage will likely improve to adequate levels in fiscal 2015.
A senior-lien net water and sewer system revenue pledge secures the series 2007 priority-lien bonds. In addition, the system supports roughly $63 million of certificates of obligation and general obligation debt, which the rating service included in its total debt service coverage calculation. Officials indicate the city has not entered into any direct-purchase bank debt.
