The city of Corpus Christi’s credit has been downgraded again, the change attributed largely to water issues plaguing the region.
The news was announced via email late May 4.
In the press release, city officials wrote that S&P Global Ratings had dropped its utility system credit ratings as “the result of the current, acute drought risk as well as the potential for a Level 1 Water Emergency later this year.”
The email added that the reduced score of AA- to A was “attributed to the necessity of securing additional water supply resources in the immediate term and to keep up with costs and debt service coverage ratios.”
The agency has also designated the city as under a “negative credit watch,” according to the news release.
S&P had, in October, updated the city’s outlook from stable to negative, the agency’s website shows.
A new post on the site, dated May 4, states that the agency had also taken action related to the Nueces River Authority and Lavaca-Navidad River Authority.
“We lowered our rating to ‘A’ from ‘AA-‘ on the Nueces River Authority’s series 2015 contract revenue bonds, issued for the Lake Texana project, and placed the rating on CreditWatch with negative implications,” it states. “Finally, we lowered our rating to ‘A’ from ‘AA-‘ on the Lavaca-Navidad River Authority’s (LNRA) outstanding water supply contract revenue bonds, issued for the Lake Texana project, and placed the rating on CreditWatch with negative implications.”
Those changes will matter for the city, according to its news release.
“The NRA and LNRA’s series of debt issues affected by the lowered credit rating were for projects related to the production and transmission of water from Lake Texana via the Mary Rhodes Pipeline,” it states.
The credit ratings can have a direct impact on taxpayers because they play a large role in how much the city pays in interest when borrowing money for major infrastructure initiatives.
Continued credit troubles
S&P is the latest ratings agency that has either given a more grim “outlook” or “watch” on the city or downgraded its score.
Moody’s downgraded the city’s ratings for utility revenue from Aa3 to A1 in December, stating in a news release that the change “reflects the expectation for challenging credit conditions … as the city seeks to alleviate its water supply issues amid a very tight implementation window.”
In April, officials announced that while Moody’s had maintained Corpus Christi’s current credit rating, the city was “‘under review’ for a final rating, including a downgrade, as (information) on water projects becomes available the next two to six weeks,” according to a message sent to the council by City Manager Peter Zanoni at the time.
Also in April, Fitch Ratings announced a decline in the city’s outlook from stable to negative; however, it continued with an AA rating for Corpus Christi, according to a city news release issued at the time.
“The Outlook revision reflects heightened uncertainty from the city’s elevated water supply risk and the potential effects on its economy and overall credit quality, pending the timing and effectiveness of mitigation efforts that are underway or planned,” a report on Fitch’s website stated. “A revision of the Outlook to Stable will depend on the city’s ability to secure additional long-term water supply solutions within the next 12-24 months.”
A water emergency
The news on S&P’s assessment of Corpus Christi’s credit arrives as the city stands at the crossroads of substantial developments in its proposed water supply endeavors.
Those include efforts to expand to full capacity groundwater well fields in Nueces County, a venture that would require sign-off by the Texas Commission on Environmental Quality.
They also include the outcome of a hearing that will decide standing of protestants who are pushing back against Evangeline groundwater plans, as well as the City Council’s deliberation on moving forward with Inner Harbor desalination.
As of early morning on May 5, the judge who had overseen the hearing had not issued her ruling, Zanoni wrote in a message to the Caller-Times.
The vote on continuing with design of the Inner Harbor desalination plant is scheduled for June 2.
Direction of the ratings
The negative credit watch assigned by S&P Global Ratings will mean monitoring “several factors over the next three to six months, to include the City’s overall financial performance, the timely completion of water supply projects, the ability to raise utility rates, and the continued possibility of a Level 1 Water Emergency,” the city’s May 4 news release states.
Latest projections presented by staff show September as the timeframe that the city may enter a water emergency, meaning that it is forecast that the city’s overall water supply would be unable to meet demand within six months.
City officials have said they don’t necessarily believe that prediction will materialize, but are continuing to prepare for that possibility through consequential decision-making, including curtailment of water usage percentages, water allocations for each customer class and potential surcharges.
The news release cites S&P as stating that “there is a potential for rating upgrades or further rating downgrades in the future depending on the completion of ongoing water supply projects on schedule and/or securing additional revenues to keep up with the costs associated with the on-going water supply projects.”
Kirsten Crow covers city government and water news. Have a story idea? Contact her at kirsten.crow@caller.com.
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This article originally appeared on Corpus Christi Caller Times: Water issues are again damaging city of Corpus Christi’s credit
Reporting by Kirsten Crow, Corpus Christi Caller Times / Corpus Christi Caller Times
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