SAN FRANCISCO, Dec 10 (Reuters) - Moody’s Investors Service downgraded nearly $160 million of Fresno Wastewater Enterprise debt by one notch to ‘A1’ on Monday, citing concerns that the City of Fresno, California, could tap the sewer system for funds.
“The sewer enterprise itself is financially very healthy, but the City’s general credit quality has weakened significantly in recent years,” Moody’s said in a statement.
The weakening has increased the risk that California’s fifth-largest city could “increase borrowing from the sewer enterprise and the risk of immediate debt service acceleration, in the unlikely event that the city were to seek bankruptcy protection,” Moody’s added.
The rating agency said the sewer enterprise has “ample cash reserves” in a city-wide pool. It pointed out that “the City may borrow funds from the sewer enterprise fund, potentially weakening the enterprise’s financial flexibility and available resources.”
Moody’s said its downgrade affects approximately $159.8 million in outstanding sewer enterprise bonds.
In July, Moody’s lowered its issuer rating on Fresno to ‘A3’ from ‘A2’ because of the city’s weak finances and uncertainty about its budget.