Fitch cuts Corpus Christi’s utility system rating to A-minus

Corpus Christi, Texas, shoreline — Depleted water supplies continue to weigh on Corpus Christi’s bond ratings, which have been hit with multi-notch downgrades and negative outlooks.

A downgrade deluge continued for drought-stricken Corpus Christi, Texas, on Monday with Fitch Ratings dropping its rating for the city’s combined utility system senior lien revenue bonds to A-minus from AA-minus.

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The three-notch cut and continued negative outlook follow downgrades for the utility system by other bond rating agencies since December.

Fitch cited “the system’s weakened revenue defensibility and the continued strain on its financial profile due to acute water supply constraints.”

“While rate increases could offset rising debt service, uncertainty related to potential water curtailments and their impact on revenue generation, critical supply projects and capital spending requirements, along with industrial customer concentration, could limit the system’s ability to meaningfully improve leverage and coverage metrics,” Fitch’s rating report said.

It added that the negative outlook originally assigned to the utility system in October “is driven by the possibility that weaker financial and operating performance as a result of a failure to address supply deficiencies over the next one to two years could lead to further negative rating action.”

In a statement, the city noted Fitch Ratings said the outlook could be stabilized by the timely execution of capital projects to boost water supply.

Corpus Christi has $1 billion of projects aimed at producing 76 million gallons of water daily underway. Long-term projects being explored involve seawater desalination, which could be eligible for greater federal funding.

Recent rainfall and other factors led the city to move the projected onset of a potential Level 1 emergency — indicating water supply is 180 days from not meeting demand — to December from September.

Last month, the city council gave final approval to the issuance of up to $500 million of utility system senior lien revenue bonds, $113.17 million of refunding bonds, as well as $115 million of general obligation bonds, which will tap voter-approved authorization from 2022 and 2024.

In May, S&P Global Ratings downgraded the city’s utility system revenue debt rating two notches to A and placed it on CreditWatch indicating the potential for another downgrade over the next six months. S&P also revised its outlook for Corpus Christi’s AA GO bond rating to negative from stable.

Moody’s Ratings, which downgraded Corpus Christi’s GO rating to A1 from Aa2 and utility system rating to A1 from Aa3 in December, launched a review in April for another round of potential downgrades.

Fitch revised its outlook on the city’s AA issuer rating to negative from stable in April.

Corpus Christi Water, the primary water supplier for a seven-county region, is experiencing stage three drought conditions that triggered water-use restrictions.

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