OREANDA-NEWS. S&P Global Ratings has raised its rating on North Texas Municipal Water District's (NTMWD) Sabine Creek Regional Wastewater System revenue debt to 'A-' from 'BBB+'. We have also assigned our 'A-' rating to the system's series 2016 contract revenue bonds. At the same time, we have raised our rating to 'A-' from 'BBB+' on the district's debt issued for the Sabine Creek Wastewater Interceptor System and Parker Creek Regional Wastewater System, all issued for either Royse City or for the city of Fate. The outlook on all ratings is stable.

"The higher rating on the Sabine Creek Regional Wastewater System debt is based on the application of our revised water and sewer criteria," said S&P Global Ratings credit analyst Oladunni Ososami, "while the higher rating on the other debt reflects our view of the participants' general creditworthiness and the district's ability to pass on the system's costs as necessary between the two participants based on contract provisions."

Royse City serves about 3,895 water and 3,580 sewer customers in Rockwall County, just east of Fate and Rockwall and about 30 miles east of Dallas directly along Interstate 30, while Fate serves about 3,684 water and 2,646 sewer customers.

"The stable outlook reflects the expectation that both systems will take appropriate actions, including rate increases, if necessary, to maintain adequate coverage of all of their respective obligations during the two-year outlook horizon," added Ms. Ososami. There are manageable capital needs associated with each system, so system rates, leverage, and financial results should be sustainable at current levels. We do not anticipate the rating changing in the next two years, as the local economic and operating environment is unlikely to change.

Given that the volatility in Fate's debt service coverage (DSC) and our expectation that Royse will see softening of coverage levels in 2016, we don't see further upward potential for the rating. Upward rating mobility in the longer term will need to be preceded by consistently strong all-in DSC for both systems. Conversely, we view downside risk as based on an unexpected change in the systems' financial risk profile, perhaps by an unforeseen regulatory mandate that causes NTMWD capital plan costs to sharply increase.