November 2, 2013
Fitch Ratings, a national bond credit rating service, has affirmed the “A+” rating of bonds issued by the San Patricio Municipal Water District.
The opinion was consistent with a rating of “A” given to District bonds by Standard & Poor’s Ratings Services in 2012.
The District has approximately $44 million in outstanding revenue bond debt incurred in constructing water supply pipelines, pump stations and water treatment facilities. The District currently has $9.7 million in project and operating reserve funds.
Fitch Ratings revise its ratings outlook for the District from stable to negative noting that the change reflects volatility and the level of debt service coverage in recent years. Debt service coverage is the amount of annual revenue remaining after operating expenses are subtracted.
Debt service on District bonds is currently $3.4 million a year. The ratings agency would like to see a debt service coverage rate in District accounting that is substantially higher than $3.4 million. In 2012 the all in debt service coverage fell below 100% which “is not consistent with the current rating level in Fitch’s view.”
Ratings from services such as Fitch and Standard & Poor’s have an impact on the interest rate the District will have to pay on future revenue bond sales. The District has no plans to issue additional bonds in the immediate future.
Fitch notes that the volatility in District revenues is directly connected to annual variations in rainfall and that these variations account for lower debt service coverage rates in some years.
They reassure bond holders by noting that the District’s board of director s has the ability, if necessary, to enact higher rates at any time if water sales were to decline significantly. They note that the District’s level of reserve funds are adequate with more than 200 days of cash on hand.
The ratings agency points to the strong nature of the District’s industrial customers which include OxyChem, DuPont, Air Liquide, Sherwin Alumina, Ingleside Cogen and Gregory Power.
