S&P: Jackson, MS Water, Sewer Bond Rating Lowered To 'BBB' On Weaker Debt Service Coverage, Financial And Operating Pressures
The rating action reflects a trend in the system's significantly weaker debt service coverage (DSC) levels, falling to 0.5x in fiscal 2013 and remaining thin at 1.16x in 2015, combined with continued pressures on the system's operations from its increasing capital needs.
"It is our opinion that coverage levels will remain vulnerable in 2016 and 2017 without initiatives to significantly improve the system's revenues through rate adjustments, other revenue enhancements, or expense controls," said S&P Global Ratings credit analyst Oladunni Ososami. "The city will need to continue to address its revenue collection challenges and looming additional debt needs to fund its significant, but not fully articulated, capital costs stemming from its consent decree and other environmental concerns."
The rating action also reflects S&P Global Ratings' view of the system's good enterprise risk profile and extremely vulnerable financial risk profile, which is exacerbated by future capital needs the system expects to fund with significant debt. A full financial plan with planned rate increases has yet to be provided by the city; S&P Global Ratings will assess the magnitude of additional debt on the rating when sufficient information becomes available.
The stable outlook reflects S&P Global Ratings' opinion that despite significant uncertainty on how the city will address both its large, regulatory driven capital plan and its environmental and revenue collection challenges, financial margins are likely to remain at levels consistent with the current rating level, unless revenue collections fall short of estimates or expense needs increase sharply within the two-year outlook period.