Fitch: Water utilities on solid footing despite possible recession

Fitch Ratings says U.S. water utilities weathered the COVID-19 pandemic remarkably well and appear to be on solid footing, even as the broader economy inches closer to recession, according to the credit ratings company’s annual peer review for the sector.

According to the review, slower economic growth and persistent inflation are leading Fitch economists to call for a possible recession in either late-2023 or early-2024. Nonetheless, most water utilities have fared well, evidenced by sustained operating revenue growth.

“Inflationary pressures have not been as acute as expected with operating costs increasing only slightly and at a slower pace,” said Fitch Ratings Senior Director Audra Dickinson.

Another sign of the sector’s resiliency, Fitch adds, is evident in liquidity, which remains robust with the median for retail systems’ liquidity cushion improving to more than 600 days. The metric dropped for wholesale systems, but remains more than 500 days.

The picture is more mixed as it pertains to leverage, which improved slightly for retail systems. Conversely, leverage jumped notably for wholesale systems. Given the ‘AA+’ median rating across the portfolio, most issuers still retain headroom and most ratings are not imminently pressured.

Fitch’s U.S. Water and Sewer: Peer Review is a point-in-time assessment of Fitch-rated public water and sewer utilities. It assists market participants in making their own comparisons among the recent financial performance of wholesale and retail water and sewer systems. It is accompanied by the 2023 Water and Sewer Fitch Analytical Comparative Tool (FACT), an interactive tool that provides enhanced trend analysis and peer comparison tables.

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