BRADENTON, Fla. - Standard & Poor's downgraded the Aliceville Governmental Utilities Services Corp., Ala.'s bonds to CCC-minus from CCC after the corporation nearly drained its reserves.
S&P's action Jan. 5 applies to about $8.37 million in outstanding revenue bonds issued in 2011 to build water and sewer facilities for a Federal Bureau of Prisons women's correctional institute near the city of Aliceville.
"The current rating is based on a series of draws on the debt service reserve fund in August 2013 and again in February and August 2014, almost completely exhausting the fund," said analyst Theodore Chapman. "Absent certainty that sufficient funds will be with the trustee by the Feb. 1, 2015 payment date, we would likely lower the rating to no better than CC, then to D once a default has occurred."
The GUSC has had a rate dispute with the Federal Bureau of Prisons for several years.
The corporation increased rates to generate revenues for operations and debt service. Prison officials contested the increase and continued to make payments at a lower amount.
Resolving the dispute will not necessarily ensure that enough money will be on hand to satisfy the upcoming $193,000 payment, S&P said.
"Even if ongoing revenues from operations would be enough to satisfy the Feb. 1, 2015 payment, we view the ability to make the Aug. 1, 2015 principal and interest payment as doubtful assuming the current cash flows of the project," Chapman said.
Following the disclosure that $835,070 was drawn from the debt service reserve to make the August 2014 payment, the reserve fund was nearly depleted, according to S&P's calculations.
The funds remaining in reserve would be insufficient to make the Feb. 1 interest payment without additional revenue, S&P said, adding that the current balance is believed to be less than $55,000.
The water and sewer facilities were constructed to serve the prison. Aliceville operates and manages the prison-related water and sewer utilities for the GUSC, which are separate from the city's infrastructure.
S&P said the dispute does not have any recourse to the city's utility revenue bonds.
