Both Moody’s Investment Services and Fitch Ratings have upgraded the bond rating for Houston’s water and sewer system debt.

The City of Houston is in the process of refinancing $3.2 billion of water and sewer system debt as part of a broader plan to create a combined utility system. The refinancing, coupled with a water and sewer rate hike of about 10%, will allow for up to $50 million a year for the next three years to pay for storm water drainage improvements.

Moody’s Investment Services has assigned an A2 rating to the first lien refunding bonds, or new bonds. This is an upgrade from A3. Moody’s has also upgraded the bond rating on $1 billion of existing junior lien bonds that will not be included in the refinancing. These junior lien bonds are now rated A1, up from A3. Fitch Ratings upgraded the junior lien bonds to A+ from A. The new bonds will retain an A rating from Fitch. There was no change in the A+ rating from Standard and Poor’s Investment Services.

In announcing the ratings, Fitch Ratings stated, “The A rating reflects the breadth, growth and diversity of the service area, the sufficiency of the system’s water resources to the year 2035, and the adequate debt service coverage and liquidity for system debt.” A full written report will not be available from Moody’s until next week.

“This is confirmation of the strength of the City’s water and sewer system,” said Houston City Controller Annise Parker. “The bond deal is expected to occur on or about May 18, 2004. We expect the ratings upgrade will help in securing favorable interest rates that will result in savings.”

The refinancing will consist of $1.8 billion of fixed rate bonds and $1.4 billion of adjustable rate bonds. The bonds will be secured by revenues from the new combined utility.

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