Moody's downgrades to Baa3 the City of Jackson's (MS) Water & Sewer Revenue Debt;
outlook remains negative
Global Credit Research - 17 Aug 2016
New York, August 17, 2016 -- Summary Rating Rationale
Moody's Investors Service has downgrade, to Baa3 from A3, the rating on the City of Jackson's (MS) Water and Sewer System revenue bonds, affecting approximately $227.9 million in rated debt. The outlook remains negative.The downgrade reflects deterioration of financial performance in fiscal 2016 driven by the persistent under-collection of billed services coupled with the expectation for continued financial challenges due to inadequate rate management practices and the long term pressures on the system's finances stemming from mandated outsized capital needs. Additional considerations include the system's sizeable customer base with institutional presence, weak socioeconomic indicators, and limited concentration within the top customers.
The negative outlook reflects the ongoing challenges related to the persistent under-collection of billed services and management's ability to articulate a plan to balance future operations. The outlook further considers the system's outsized capital needs and the uncertainty surrounding its financial position and ability to absorb additional debt.
Factors that Could Lead to an Upgrade
Stabilization of billing system leading to a trend of improved financial performance including strengthened coverage ratios and bolstered liquidity
Demonstrated adherence to a multi-year, comprehensive plan to address consent decree requirements and aging facility infrastructure, while maintaining key financial metrics
Significant reduction of receivable position leading to improved liquidity
Factors that Could Lead to a Downgrade
Failure to maintain adequate debt coverage ratios
Further erosion of liquidity position or significant additional receivable growth
Continued decline in financial flexibility, whether for capital or operational needs
Significant additional leverage of system assets and/or revenues
Revenue bonds are secured by the net revenues of the system.
Use of Proceeds
The water and sewer system serves an area of approximately 150 square miles, including the City of Jackson and portions of Hinds, Rankin, and Madison counties. The system served 56,998 water and 50,709 sewer customers in fiscal 2015. Residential accounts constitute approximately 89% of the customer base.
Kingfish note: NASDAQ defines Baa3 as:
The lowest rating of investment grade Moody's Long-term Corporate Obligation Rating. Obligations rated Baa3 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Rating one notch higher is Baa2.