The credit rating of Corpus Christi's utility system has been lowered by S&P Global Ratings, in a move the agency tied directly to the South Texas city's deepening drought and the prospect of a formal water emergency before the end of the year.
In an announcement on 4 May, the City of Corpus Christi confirmed that S&P had cut the utility system's rating from "AA-" to "A", a level the agency describes as a medium-grade credit rating. The system has also been placed on a "negative credit watch", meaning the rating could move again, in either direction, in the coming months.
S&P attributed the downgrade to what it called "the current, acute drought risk", as well as the potential for a Level 1 Water Emergency later this year. The agency also pointed to the need for Corpus Christi to secure additional water supply resources in the immediate term and to keep pace with costs and debt service coverage ratios.
Over the next three to six months, S&P said it would be monitoring the city's overall financial performance, the timely completion of water supply projects, its ability to raise utility rates and the continuing possibility of a Level 1 Water Emergency. Further movement on the rating, the agency indicated, would depend on whether ongoing water supply projects are delivered on schedule and whether the city can secure additional revenues to cover their cost.
S&P attributed the downgrade to what it called "the current, acute drought risk", as well as the potential for a Level 1 Water Emergency later this year
The downgrade extends beyond the city itself. S&P also lowered the credit ratings, from "AA-" to "A", on a series of debt issuances by the Nueces River Authority and the Lavaca Navidad River Authority. Both relate to the production and transmission of water from Lake Texana via the Mary Rhodes Pipeline. Stage 3 drought restrictions are currently in effect across the city.
The downgrade has landed at a moment when the wider state is being pressed to reconsider how it manages its water supplies. A new study from the Sierra Club, published this month, argues that Texas is at a critical juncture and calls on state leaders and the owners of power plants, which the group says use water in "staggering" volumes, to do more to conserve supplies.
"It has made us acutely aware that water scarcity in the state is not taken seriously enough," Linsay Mader of the Sierra Club told Spectrum News, describing Corpus Christi as a wake-up call.
For the City of Corpus Christi, the immediate questions are narrower and more pressing: whether water supply projects can be completed on time, whether rates can be raised to cover them, and whether the next few months bring enough relief to avoid a Level 1 Water Emergency. The answers, S&P has signalled, will shape not only the city's credit profile but the cost of the borrowing it will need to climb out of the drought.
