Citing rapidly increasing overdue government utility bills, rising fuel prices and the poor economy, the Fitch credit rating agency downgraded more than $210 million in V.I. Water and Power Authority bonds Thursday. The ratings agency also explicitly called on the V.I. Public Services Commission to raise WAPA’s water service base rate, in order to improve the water system’s financial condition.
The downgrade does not have an immediate effect on WAPA’s finances or loan rates, in part because other ratings agencies are not moving in the same direction,WAPA spokeswoman Cassandra Dunn said Friday afternoon.
"We would like to have positive ratings from all the agencies of course, but in fact the other two major ratings agencies, Moody’s and Standard & Poor’s, actually reaffirmed our ratings and have us on a stable watch, so I don’t believe it impacts us much at this particular time," Dunn said.
Fitch downgraded $156.05 million senior lien bonds to ‘BB’ from ‘BBB’ and $57.50 million subordinate lien bonds to ‘BB-‘ from ‘BBB-‘, keeping both on a negative rating watch.
Fitch assigned a "BB" rating to $17.5 million in electric system bonds WAPA is in the process of refinancing after a board vote earlier this week, and a "BB-" rating to $40 million in short-term debt to purchase fuel from Hovensa, which WAPA is also refinancing.
The ratings agency’s statement painted a picture in which a rising tide of overdue government bills and rising fuel costs have forced the utility to rely more and more heavily on short-term debt to purchase fuel and pay current operating expenses.
As of the end of October, about 64 percent of the electric system’s government accounts receivable were more than 60 days past due. To add some detail to this picture, WAPA currently owes Hovensa $30 million, while the V.I. government owes WAPA approximately $32-$33 million, WAPA officials said at a board meeting earlier this week.
In the short run, successfully extending and refinancing its loans as planned will help move WAPA’s ratings from a negative watch to a stable or positive outlook, according to Fitch. Over the longer haul, moving away from oil is critical. Fitch also asserts WAPA’s water system needs more revenue in the form of increased base utility rates to offset rising government receivables and a growing water system debt to the electric system.
"This deteriorating situation will necessitate timely rate relief by the PSC, the need to roll over short-term debt obligations and managing exposure to volatile fuel oil prices," Fitch’ statement said.
