Memphis Light, Gas & Water’s outlook lowered to negative by S&P

The outlook on Memphis Light, Gas & Water’s AAA water system revenue bonds was lowered to negative from stable by S&P Global Ratings.

“The outlook revision reflects our view of the water system’s accelerating near-term capital needs, which could pressure debt service coverage and liquidity before the next multiyear rate plan is adopted, with current estimates not assuming any rate adjustments in fiscal years 2024 or 2025,” said S&P Global Ratings Credit Analyst Chloe Weil.

As of June 30, 2023, the water system had $115 million in debt outstanding.

“The negative outlook reflects the one-in-three chance we could lower the rating if financial metrics significantly deviate from historical trends as the water system progresses through its relatively large capital improvement plan,” Weil said.

The utility has significant capital spending needs at a time when some observers believe U.S. water utilities face up to $2 trillion in capital expenses in the coming years.

Weil said MLGW committed to completing a study of potential rate increases, but their size and timing haven’t been set.

MLGW couldn’t be immediately reached for a comment.

Moody’s Ratings rates the bonds Aa1 with a stable outlook. The water system has ample capacity and is in good working order, Moody’s said in July. The system had 208 days cash on hand as of June 31, 2023.

MLGW gets its water from the Memphis aquifer, unlike some water systems that draw on surface water. It has more than 275,000 customers, operates 10 water pumping stations and more than 175 wells throughout Shelby County, which encompasses most of Memphis as well as some of its suburbs.