Water supply concerns spark Moody's review of Corpus Christi's ratings

The termination of a seawater desalination project in Corpus Christi, Texas, led Moody’s Ratings to place the city’s bond ratings under review for potential downgrades.

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Moody’s Ratings put Corpus Christi’s bond ratings under review for potential downgrades in the wake of the city’s action last week ending plans for a seawater desalination plant.

The rating agency said the review announced late Wednesday was triggered by “unexpected acceleration of water depletion risk” due to “the recent cancellation of a long-term effort to enhance (the city’s) water supply without an adequate replacement,” which introduced credit quality uncertainty. It also pointed to ongoing drought conditions along the Texas gulf coast and significant demand from new and existing water-intensive industries.

The Corpus Christi City Council on Sept. 3 rejected a contract to continue design work for the Inner Harbor Water Treatment Campus, which would be the first seawater desalination plant for municipal use in Texas, effectively terminating the project as its estimated cost escalated to $1.2 billion.

Moody’s, which rates Corpus Christi’s general obligation and sales tax revenue bonds Aa2 and its utility revenue bonds Aa3, said the city has about $2.1 billion of outstanding debt.

“The city’s water stress negatively impacts its environmental, social, and governance risks, which are drivers of this action,” the rating agency said, adding the review will cover Corpus Christi’s ability to secure sufficient water in “the likely event” its western supply dries up.

A water supply dashboard on the city’s website indicates two western reservoirs will be depleted during the first half of 2027.

“We will also evaluate the long-term implications of the city’s water supply vulnerabilities, including potential impacts upon its economic, financial, and leverage profiles,” Moody’s said.

A statement from Corpus Christi said maintaining the fiscal health of its utility system is a top priority and that it “remains committed to transparency, sound financial management, and proactive planning.”

“We will work closely with our financial advisor and finance team to ensure we are fully prepared for this important discussion with Moody’s,” the statement added.

Corpus Christi Water, which is the primary water supplier for a seven-county region, expected the desalination plant to produce up to 36 million gallons of potable water daily. The area is experiencing stage three drought conditions that triggered water-use restrictions.

Ditching the desalination plant raised concerns about bonds sold for the project by the triple-A-rated Texas Water Development Board (TWDB) under low-interest loan agreements with Corpus Christi.

The city is obligated to pay back an outstanding principal balance of $235 million, plus $135.8 million in interest, according to the TWDB.

City officials have raised the possibility of defeasing the bonds at their 10-year call dates. It was unclear how unspent bond proceeds could be tapped in a timely manner for projects other than desalination.