The 2014 outlook for the U.S. water and sewer market is stable despite ongoing economic, capital and political pressures, according to new report from Fitch Ratings. The report reveals that while water and sewer utilities continue to face ongoing capital and debt pressures, the sector shows overall financial strength.
?Water and sewer utilities have shown some financial improvement despite flat water usage and near-flat wastewater flows,? said Douglas Scott, Fitch managing director. ?However, many still face insufficient cash flows to fully cover annual depreciation expenses.?
Many of the key financial metrics have improved, including a 6 percent increase in revenue due to rising user charges, while liquidity levels remain robust. However, this is offset by a 10 percent decrease in planned capital spending, which raises concerns about future deferred maintenance.
While debt ratios fell modestly due to a slowing of new issuance, Fitch forecasts debt burdens to increase slightly over the next five years.
?While we expect ratings affirmations to be the norm for water and sewer utilities, financial improvement across the sector will continue to be determined by economic expansion,? added Scott.
Negative effects of the recent global economic weakness have been offset by a number of stabilizing factors including the water and sewer sector’s essential services, the monopolistic business nature and local rate-setting. While some issuers may see incremental financial improvements, the sector faces risks including the inability to generate surplus margins due to declining or stagnating sales.
The current operating environment presents water and sewer utilities with a challenging platform for long-term business, but most systems continue to exhibit sufficient financial flexibility. Despite a largely stable regulatory outlook, utilities? credit profiles could also be negatively impacted by any environmental regulation that adds significant operating or capital costs.
Fitch will host a conference call to discuss its 2014 Water & Sewer Medians as well as its 2014 Water & Sewer Outlook reports on Dec. 13 at 11:00 a.m. EST.
