Overview
S&P Global Ratings took 26 rating actions, made eight outlook revisions, and made one CreditWatch placement in the U.S. municipal water and sewer utilities sector in the fourth quarter of 2023. We affirmed 44 ratings with no outlook revisions and placed one rating on CreditWatch with negative implications.
Positive rating actions exceeded negative actions, with 12 upgrades compared to four downgrades in the quarter. We assigned a negative outlook to three ratings, outweighing the two outlooks revised to positive, and also returned three outlooks to stable.
New ratings declined against third-quarter 2023 and also trended below the same period last year. Rating movement slightly increased compared to third-quarter 2023, reaching a peak for the year, but movement is generally down from the same period in 2022.
Table 1
| U.S. Municipal Water And Sewer Utilities Rating Actions, Year-To-Date 2023 | ||||
|---|---|---|---|---|
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |
| New ratings | 7 | 8 | 13 | 10 |
| Upgrades | 3 | 11 | 13 | 12 |
| Downgrades | 6 | 5 | 2 | 4 |
| Outlooks revised to positive | 4 | 1 | 3 | 2 |
| Outlooks revised to negative | 5 | 7 | 5 | 3 |
| Outlooks returned to stable | 8 | 6 | 0 | 3 |
| Ratings removed from CreditWatch | 1 | 9 | 0 | 0 |
| Ratings placed on CreditWatch with negative implications | 13 | 1 | 1 | 1 |
| Ratings maintained with no outlook revision | 75 | 65 | 57 | 44 |
Fourth-Quarter Rating Actions
In fourth-quarter 2023, we raised 12 ratings and lowered four. Positive rating movement was mostly driven by sustained improvements in all-in debt service coverage (DSC) and liquidity due to rate increases and prudent management. Upgrades also reflected our expectation that credit qualities such as significant liquidity reserves, healthy customer growth, and long-term planning will help hedge financial pressure from rising costs and large capital programs. Negative rating actions were primarily due to deterioration of all-in DSC, pressured by factors such as rising operating expenses, escalating debt service obligations, and revenue volatility due to significant revenue concentration.
Fourth-Quarter Outlook Revisions And CreditWatch Actions
During the quarter, we revised two outlooks to positive, three to negative, and returned three to stable. Both positive outlooks reflected our anticipation that recently improved financial metrics will be maintained, given future rate plans. Two of the negative outlooks primarily reflected our view of potential financial pressures from significant capital needs and additional debt plans that we believe could worsen all-in DSC and liquidity metrics. The remaining negative outlook was driven by narrowing DSC that we anticipate may remain at current levels given management's lack of an approved rate plan. Two of the outlooks revised to stable reflect proactive management practices that we believe have mitigated business risks from water supply challenges. One outlook revised to stable was due to the implementation of rate increases, associated with a long-term financial plan that we believe will help maintain stable financial metrics.
We placed one rating, Manteca, Calif., on CreditWatch with negative implications due to a lack of sufficient information required to maintain the rating. Ultimately, the rating was removed from CreditWatch as we have since received sufficient information.
Fourth-Quarter Lookback
Proposed federal regulation related to emerging contaminants could affect the credit quality for thousands of U.S. water utilities, given the potential for increased capital and operating costs that could pressure rate flexibility. In March 2023, the Environmental Protection Agency (EPA) proposed a national primary drinking water regulation for PFAS, otherwise known as forever chemicals, that is expected to be finalized in the next several months. For water utilities across the U.S., the proposed MCL might result in costly treatment upgrades, ongoing monitoring and asset replacement, disposal, and staffing. For more information, see "Pending Federal Regulation Could Significantly Affect Thousands of U.S. Water Utilities," published Dec. 11, 2023, on RatingsDirect.
Arizona local government and water utility ratings demonstrated credit stability in 2022 and 2023 and, despite hydrological challenges and softening economic trends, continue to benefit from population gains, ample liquidity, and water supply diversity. Longer-term rating stability is also provided by the state's conservative and supportive water policies and by planning guidelines that moderate development to protect supply sufficiency. Given the state's population growth and climate volatility, S&P Global Ratings believes alternative supply development is necessary for long-term rating stability. For more information, see "Arizona Water Utility and Local Governments Credit Brief: Future Rating Stability Boils Down To Managing Supply Variability," published Nov. 9, 2023.
The following tables summarize S&P Global Ratings' fourth-quarter rating actions for U.S. municipal water and sewer utilities. All rating actions are based on our criteria.
Table 2
| U.S. Municipal Water And Sewer Utilities Rating Actions, Summary Fourth-Quarter 2023 | |||||||
|---|---|---|---|---|---|---|---|
| Entity | State | Rating | Outlook | CreditWatch | Rating Action Description | ||
| To | From | To | From | ||||
| Xenia Rural Water District | IA | A | A- | Stable | Positive | Upgrade reflects our view that the district has maintained consistently strong financial metrics that have outperformed forecasts since a 2013 forbearance agreement and debt restructuring. | |
| Daphne Utilities Board | AL | AA+ | AA | Stable | Stable | Upgrade reflects our view of the utility's record of robust coverage and liquidity, which will likely remain sustainable due to manageable capital needs, lack of debt, and stable customer base. | |
| Signal Hill | CA | A+ | A | Stable | Stable | Upgrade reflects a recent rebound in all-in coverage (AIC), coupled with overall strong financial metrics, which we expect to continue, despite ongoing water purchases from Metropolitan Water District (MWD). | |
| El Centro (Sewer) | CA | A | A- | Stable | Positive | Upgrade reflects our view of the city's robust financial metrics and our belief that the city's financial profile provides sufficient cushion should the city issue additional debt or draw on reserves to fund capital projects. | |
| Spotsylvania County | VA | AA+ | AA | Stable | Positive | Upgrade reflects our belief that historical financial metrics are sustainable in the long term, due to continued growth in the service area that has bolstered the system's debt service coverage (DSC) and liquidity position. | |
| Onslow Water & Sewer Authority | NC | AA- | A+ | Stable | Stable | Upgrade reflects the growing service area, coupled with the system's historically extremely strong financial metrics, which are projected to be maintained. | |
| Mustang Special Utility District | TX | AA+ | AA | Stable | Stable | Upgrade reflects the district’s customer growth in recent years, which has led to an improvement in the system's financial performance and liquidity that we believe is sustainable. | |
| Alameda County Flood Control & Water Conservation District, Zone 7 | CA | AAA | AA+ | Stable | Stable | Upgrade reflects our view of the agency's exceptionally strong water supply position, low leverage, and healthy financial position, which we expect will remain in line with the current rating, | |
| Rowland Water District | CA | AA | AA- | Stable | Positive | Upgrade reflects our view of the district's strong financial metrics and our expectation that they will remain level given strong management practices. | |
| Burbank (Sewer) | CA | AAA | AA+ | Stable | Stable | Upgrade reflects the system's low leverage, adequate treatment capacity, and significant cash reserves, which help mitigate potential rising costs for sewage treatment. | |
| Brunswick County | NC | AA | AA- | Stable | Stable | Upgrade reflects the growing service area and management's ability to address future system growth and capital needs while maintaining extremely strong financial metrics. | |
| Gastonia | NC | AA | AA- | Stable | Stable | Upgrade reflects continued growth in the service area coupled with a historically very strong financial position. | |
| Manteca (Water) | CA | AA- | AA- | Not Meaningful | Stable | Negative | Placed on CreditWatch due to lack of timely information. |
| Sherman | TX | A | A | Negative | Stable | Revised outlook reflects our view of an increase to the system's capital improvement program (CIP) in addition to increasing costs, which we believe could lead to financial pressure. | |
| Toledo (Water) | OH | AA- | AA- | Negative | Stable | Revised outlook reflects our view of the water system's need for significant future debt to address its capital program, and our view that future rate increases may not sustain performance in line with the city's current projections. | |
| Guam Waterworks Authority | A- | A- | Negative | Stable | Revised outlook reflects our view of GWA's narrow coverage, use of one-time revenue to meet the rate covenant, and lack of an approved rate plan. | ||
| Goleta Water District | CA | A+ | A+ | Positive | Stable | Revised outlook reflects our view of the district's improved financial metrics, following its implementation of a five-year rate plan. | |
| Sacramento (Water) | CA | AA | AA | Positive | Stable | Revised outlook reflects the potential for the rating to be improved within the next several years if the system maintains coverage in line with historical levels. | |
| Indian Wells Valley Water District | CA | A+ | A+ | Stable | Negative | Revised outlook reflects management's proactive management of near-term costs associated with the implementation of a groundwater sustainability plan, which we expect will support stable financial metrics. | |
| Alhambra (Water) | CA | A | A | Stable | Negative | Revised outlook reflects the utility's implementation of a long-term financial plan and rate increases that we believe will bolster financial margins and stabilize overall financial metrics. | |
| Mountaintop Area Joint Sanitary Authority | PA | A- | A | Stable | Negative | Downgrade reflects our view of MAJSA’s several years of coverage volatility, due in part to lower-than-expected revenues from one of its major customers and escalating debt service. | |
| Merced Irrigation District | CA | A+ | A+ | Stable | Negative | Revised outlook reflects our view of the district's proactive management practices and consistent financial profile stemming from effective conjunctive-use water activities, water conservation, and improved hydroelectric net revenues. | |
| Washington (Water) | IN | A- | A | Stable | Stable | Downgrade reflects our view of the city's weak management practices and a shallow service area, which limit the system's ability to respond to financial pressures. | |
| Hobart Village | WI | A | A+ | Stable | Stable | Downgrade reflects our view of the utility's declining AIC in recent years, due in part to escalating debt service payments. | |
| Washington (Sewer) | IN | BBB+ | A | Stable | Stable | Downgrade reflects our view of the city's highly concentrated service area, which is sensitive to rate increases and limits management's ability to respond to rising operating expenses. | |
| Hidden Valley Lake Community Services District | CA | A | Stable | New rating. | |||
| Hailey | ID | A+ | Stable | New rating. | |||
| Inman-Campobello Water District | SC | A | Stable | New rating. | |||
| Star Harbor | TX | BB | Stable | New rating. | |||
| Alexandria Lake Area Sanitrary District | MN | A+ | Stable | New rating. | |||
| Tampa (Stormwater) | FL | AA+ | Stable | New rating. | |||
| Sterling | CO | AA+ | Stable | New rating. | |||
| Fort Collins (Stormwater) | CO | AA+ | Stable | New rating. | |||
| Donalds-Due West Water and Sewer Authority | SC | A | Stable | New rating. | |||
| Jefferson County (Sewer 2023) | AL | BBB+ | Positive | New rating. | |||
Table 3
| U.S. Municipal Water And Sewer Utilities Maintained Ratings, Summary Fourth-Quarter 2023 | |||
|---|---|---|---|
| Entity | State | Rating | Outlook |
| Savannah | GA | AA+ | Stable |
| Fuquay-Varina | NC | AA | Stable |
| Boulder (Water and Sewer) | CO | AAA | Stable |
| Kansas City (Sewer) | MI | AA | Stable |
| Mansfield (Water and Sewer) | TX | AA+ | Stable |
| Great Lakes Water Authority (Water) | MI | AA- | Stable |
| Savannah | MO | A | Stable |
| Platteville | WI | AA- | Stable |
| Crescenta Valley Water District | CA | AA- | Stable |
| Truckee Meadows Water Authority | NV | AA+ | Stable |
| Upper Trinity Regional Water District | TX | A+ | Stable |
| Boston Water and Sewer Commission | MA | AAA | Stable |
| East Baton Rouge Sewerage Comm | LA | AA- | Stable |
| Fort Collins-Loveland Water District | CO | AA+ | Stable |
| Jackson County Utility Authority | MS | BBB+ | Stable |
| Norfolk | VA | AA+ | Stable |
| Madison Water & Wasterwater Board | AL | AA+ | Stable |
| Los Angeles Department of Water & Power | CA | AA+ | Stable |
| Maryland Environmental Services | MD | AA | Stable |
| Tyler | TX | AA+ | Stable |
| Dickson County Water Authority | TN | AA | Stable |
| Kansas City (Water) | MO | AA+ | Stable |
| Missoula (Water) | MT | A+ | Negative |
| Great Lakes Water Authority (Sewer) | MI | AA- | Stable |
| Madison-Suburban Utility District | TN | A+ | Stable |
| Tacoma (Water) | WA | AA+ | Stable |
| California Department of Water Resources | CA | AAA | Stable |
| Missoula (Sewer) | MT | A+ | Negative |
| Starr-Iva Water and Sewer District | SC | AA- | Stable |
| Irving (Stormwater) | TX | AA+ | Stable |
| Upper Eagle Regional Water Authority | CO | A | Stable |
| Prattville Waterworks Board | AL | AA- | Stable |
| Phoenix (Sewer) | AZ | AAA | Stable |
| Contra Costa Water District | CA | AAA | Stable |
| Knoxville Utilities Board (Water) | TN | AAA | Stable |
| Galveston County Water Control & Improvement District #1 | TX | A+ | Stable |
| Cleveland Regl Swr Dist | OH | AA+ | Stable |
| Tallahassee | FL | AA | Stable |
| District of Columbia Water & Sewer Authority | DC | AAA | Stable |
| Fayetteville | NC | AA | Stable |
| Columbia (Water and Sewer) | SC | AA+ | Stable |
| Jordan Valley Water Conservancy District | UT | AA+ | Stable |
| North Hudson Sewerage Authority | NJ | A+ | Stable |
| Fernandina Beach | FL | AA- | Stable |
This report does not constitute a rating action.
| Primary Credit Analyst: | Andrew Baird, Dallas +1 2148711429; andrew.baird@spglobal.com |
| Secondary Contact: | Jenny Poree, San Francisco + 1 (415) 371 5044; jenny.poree@spglobal.com |
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