DALLAS - Standard & Poor's shifted Mesa, Ariz's outlook to negative ahead of an upcoming $43 million utility bond deal, citing transfers of revenue to the city's general fund. A downgrade on the AA-minus rating would take the bonds to the single-A category.
"We could revise the outlook to stable if management were to maintain total debt service coverage after transfers consistently at more-adequate levels," analyst Scott Sagen wrote.
Fund transfers to the city have been "large and steadily increasing," Sagen wrote in his May 5 report.
"Unless city management takes measures to provide more-adequate total debt service coverage after transfers consistently, the rating service could lower the rating to A-plus within the outlook's two-year period," he explained.
Moody's Investors Service affirmed its Aa2 rating and stable outlook on the debt May 1. The city has about $1 billion on par with the upcoming issue, according to Moody's.
Moody's also affirmed its Aa2 rating on Mesa's general obligation bonds.
With a population of more than 439,000, Mesa is Phoenix's largest suburb.
In November, voters approved $580 million of utility bonds by a wide margin. The bonds for gas, water, electric and sanitation projects were presented as five questions that passed by an average 67% favorable vote.
The bonds will finance a new water-treatment plant, expand a wastewater-treatment plant and repair, replace and maintain infrastructure for the city's natural-gas and electric utilities. Mesa Mayor John Giles said the water treatment plant would allow the city to process more water delivered by the Central Arizona Project canal and reduce use of groundwater.
