Fitch: Challenges Ahead for Utilities, But Not Enough to Weaken Ratings

By Doug Scott

U.S. water and sewer utilities will see some weakening in their financial profiles over the next several months, effectively reversing a trend of steadily declining leverage in recent years as utilities limited the rate of debt growth and posted robust operating margins. Part of the reason for the change is the wide-reaching ripple effect of the global coronavirus pandemic.

As a result, Fitch Ratings expects a reduction in cash reserves and a gradual rise in sector leverage through fiscal 2023 due to robust capital expenditure growth in fiscal 2021 and over the medium term. In Fitch’s base case scenarios, leverage is expected to rise by more than 20 percent across the rated portfolio from fiscal 2020 to fiscal 2023.