Moody's puts Corpus Christi under downgrade review again

Drought-stricken Corpus Christi's bond ratings are under review for potential downgrades by Moody's Ratings for the second time in seven months.

The rating agency said on Thursday the latest review was driven by the Texas city's acceleration of a Level 1 water emergency timeline ? indicating the water system is 180 days from supply not meeting demand ? from November to late summer or early fall, despite efforts to boost supply.

"During the review we anticipate evaluating updated water models and the city's plan regarding implementation of a Level 1 water emergency, including water allocations, surcharges, and potential rate increases," Moody's said in a statement.

Moody's previous review of Corpus Christi, which began in September, led to downgrades in December, with the city's general obligation and sales tax revenue bond ratings dropping to A1 from Aa2 and its combined utility enterprise bond rating falling to A1 from Aa3. The lowered ratings were assigned negative outlooks.

Factors that could result in another round of rating downgrades include "meaningful erosion" of water supplies, legal rulings or challenges that materially delay or prevent projects to increase supply, and the "increased likelihood of material degradation in economic, financial, or leverage metrics because of drought acceleration or depletion of surface water resources," according to Moody's.

City officials have said $1 billion of projects aimed at producing 76 million gallons of water a day are underway. Long-term projects being explored involve seawater desalination.

"The city's leverage metrics will increase over the next several years as it issues substantial long-term debt to support water projects, though growing revenue, particularly driven by the likelihood of sizable utility rate increases, is anticipated to maintain long-term liabilities below 400% of revenue," Moody's said, adding Corpus Christi has about $2.2 billion of outstanding debt.

"We are committed to full transparency and frequent communication with Moody's throughout this process," City Manager Peter Zanoni said in a statement. "This
review period provides an opportunity to showcase the concrete steps the city is taking to secure our water future and maintain our financial resilience."

Corpus Christi Water, the primary water supplier for a seven-county region, is experiencing stage three drought conditions that triggered water-use restrictions. In March, the city council was presented with Level 1 emergency timing scenarios, including one that could happen as soon as next month.

At Thursday's weekly media briefing on the water crisis, Zanoni said a plan to pare down the number of scenarios to two will be presented to the city council next week.

He announced the council's vote on a contract with Corpus Christi Desal Partners to produce up to 60% of design work for an inner harbor seawater desalinization plant has been pushed to June 2 from April 28 due to a delay in completing an environmental study.

Federal funding for the project "is looking promising," according to Zanoni. During a February visit to the city, President Donald Trump expressed support for the move.

Last week, Fitch Ratings revised its outlook on Corpus Christi's AA issuer rating to negative from stable, citing "heightened uncertainty from the city's elevated water supply risk."

In October, both Fitch and S&P Global Ratings placed negative outlooks on their AA-minus ratings for Corpus Christi's utility system revenue bonds.

Zanoni said S&P is expected to release a rating report in a couple of weeks.