S&P: Manchester, GA's Water And Sewerage Revenue Bonds Downgraded To 'A-' From 'A' On Criteria Revision; Outlook Stable
"The downgrade reflects the application of our revised criteria on water and sewerage revenue bonds," said S&P Global Ratings credit analyst Scott Winrow. See, "Rating Methodology And Assumptions For U. S. Municipal Waterworks And Sanitary Sewer Utility Revenue Bonds," published Jan. 19, 2016, on RatingsDirect.
In addition, the rating reflects our opinion of the combination of an adequate enterprise risk profile and a strong financial risk profile.
The enterprise risk profile reflects our view of the system's:Service area participation in the broad and diverse Atlanta-Sandy Springs-Roswell metropolitan statistical area (MSA) economy;Very low industry risk as a monopolistic service provider of an essential public utility;Moderately high rates representing 3.5% of median household income; andGood operational management policies and practicesThe financial risk profile reflects our view of the system's:Adequate-to-strong historical all-in debt service coverage (DSC);Very strong liquidity position that we believe is sustainable given the system's manageable capital needs;Moderately high leverage based on a debt-to-capitalization of about 65%, with no additional debt plans in the near term; andGood financial management policies and practices. We view the bond provisions as adequate. Net revenues of the water and sewer system secure the bonds. Key bond provisions include a rate covenant set at 1.10x annual debt service and an additional bonds test set at 1.20x maximum annual debt service. A standard debt service reserve fund provides additional liquidity. In addition, a debt service reserve is funded at the standard three-prong test.
We expect the outlook to remain stable over the two-year outlook period. We also expect the system to maintain all-in DSC at levels we consider generally strong and cash levels we consider strong.
Given these expectations and the size of the system, we do not expect to raise the rating during our outlook's two-year horizon. However, if the system strengthens financial metrics, specifically all-in DSC, to levels we consider extremely strong, we could consider raising the rating.
Conversely should financial metrics erode materially from current levels, we may consider lowering the rating.