Sewer bonds take new hit
A third bond rating
agency downgraded Atlanta's water and sewer bonds Thursday.
Poor's Ratings Service dropped Atlanta one notch, from A to A-. That's
on par with what Fitch Ratings did two weeks ago but not as bad as the
assessment given by Moody's Investors Services, which downgraded the
bonds two notches last week.
A statement from
Standard & Poor's attributed the downgrading of the Atlanta Water
& Wastewater Revenue Bonds in part to the failure of the City
Council and Mayor Shirley Franklin to reach an accord on water and sewer
rate increases. The rates must go up to pay for work mandated by two
federal court agreements.
outlook reflects the need to resolve the political stalemate," the
statement said. It went on to say that the bonds could be downgraded
again if the city fails to approve adequate rate increases "in an
Atlanta agreed in
federal court in 1998 and 1999 to fix its sewers so they'll stop dumping
raw sewage into the Chattahoochee and other rivers.
Franklin backed a
$3.2 billion overhaul. On Tuesday, she vetoed water and sewer rate
increases adopted by City Council, saying they would generate less
revenue than was needed.
comes at a sensitive time. The water and sewer system plans to borrow
$1.4 billion during the next two years for construction. The
downgradings mean the city will have to pay more interest when it
And the city's
Finance Department has calculated that ratepayers will pay an additional
$2.5 million a year for the next 40 years to pay for insurance that
would make those lower-rated bonds more attractive to investors.
Most of that damage
was done before Standard & Poor's downgraded the city Thursday. And
a vice president of a company that manages investments in the city's
water and sewer bonds said that latest assessment probably won't have
"I don't think
there's necessarily a cumulative impact," said Jonathan Chirunga, a
vice president at T. Rowe Price in Baltimore. "If people have been
paying attention, the expectation is already set."
T. Rowe Price
manages the Georgia Tax-Free Bond Fund, and Chirunga said the fund owns
some Atlanta water and sewer bonds. He said he has confidence in
Franklin, her management team and her proposal to fix the sewers.
"It seems like
the city's administration has the right approach to solving its future
needs. And to the extent that they and the City Council can come up with
something that really works, that in the end is going to determine how
the market reacts," Chirunga said.
However, he said,
"If it continues to drag out, the market may lose some of its
Poor's gave several other reasons for downgrading the bonds -- the
weakened regional economy, the cost of resuming control of water service
after eliminating the contract with private provider United Water, the
cost of the looming overhaul and the mounting cost of existing debt.
Annual debt service on bonds sold previously will rise from $69.6
million this year to $93.2 million next year, a 34 percent increase.
The company said it
will maintain a "negative outlook" on Atlanta's water and
sewer system bonds because of the impasse over sewer rate increases.