Fond du Lac, WI Waterworks System Revenue Bond Rating Lowered To 'A' On Substantial Draw On Available Reserves

DES MOINES (S&P Global Ratings) April 16, 2019--S&P Global Ratings lowered its long-term rating to 'A' from 'A+' on the city of Fond du Lac, Wis.' waterworks system revenue bonds. The outlook is stable.
"The lowered rating reflects the city's substantial draw down in available reserves to fund its capital improvement plan, which has resulted in thin unrestricted reserves compared to its peers in the 'A+' rating category," said S&P Global Ratings credit analyst John Schulz. "While management has deployed what had once been extremely strong reserves toward pay-as-you-go improvements in lieu of debt, we understand that Fond du Lac has not been successful in recent rate cases with the Wisconsin Public Service Commission as to both the magnitude and timing of requests versus what has been granted. Therefore, it is our view that the water system's financial profile could remain in its current state for some time," Mr. Schulz added.
Our view of the strong enterprise profile is supported by the water system's:
  • Manufacturing- and service-based local economy, with adequate income levels;
  • Moderately high rates based on the average water bill provided by management; and
  • Good operational management assessment (OMA).
Our view of the strong financial profile reflects the water system's:
  • Good all-in debt service coverage (DSC) during the past three years when including transfers out and our expectation that coverage levels should remain consistent;
  • Days' cash on hand of 85 or $1.4 million in the last audited year (2017) down from $8.7 million or 507 days' cash in 2013;
  • Moderate debt to capitalization ratios, with additional debt plans as early as 2020 to address capital needs in the next few years; and
  • Good financial management policies and practices.
The waterworks system's net revenue secures the bonds.
The city is the seat of Fond du Lac County in southeastern Wisconsin and has a manufacturing- and service-oriented local economy.
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