Moody's Investors Service Downgrades MSW Bond Ratings

New York - Downgraded credit ratings for municipalities' solid waste systems is one aftershock of the U.S. Supreme Court's C&A Carbone v. Clarkstown, N.Y., ruling, ac-cording to a municipal credit report and solid waste rating outlook re-leased by Moody's Investors Service, New York.

Moody's examined 76 waste bond ratings, 14 of which already have been downgraded reportedly due to decreasing waste streams, financial deterioration and lawsuits. Of the sites reviewed, 33 were given unfavorable ratings outlooks, mostly re-lated to a potential loss of legal flow control.

"We've been telling everybody for a long time that bonds are at a great risk," said H. Lanier Hickman, executive director of the Solid Waste Association of North America, Silver Spring, Md., in Solid Waste Report. "Opponents to flow control thought this issue was just scare tactics, but there will be bonds that will default if we don't correct this problem."

However, the Environmental Industries Association (EIA), Washington, D.C., which is opposed to flow control, was quick to point out that the Moody's downgrades do not equate to junk status for the solid waste bonds. "None of these facilities have gone belly up, and chances are they won't," said Bruce Parker, EIA general counsel.

In the future, Moody's will consider private competition when assessing credit ratings for new solid waste system bonds, the report said. As a result, financial flexibility and management responsiveness will become key factors, according to the report. "The enforceability of economic forms of flow control such as waste generation fees and municipal hauling monopolies is a credit consideration of growing importance, given the legal challenges after the Supreme Court's decision on Carbone," the re-port said.

Even without legal flow control, Moody's still could assign investment-grade ratings to solid waste revenue bonds, as long as facilities demonstrate a sound operating history, flexibility in adjusting prices and ensuring waste flows and competitive tipping fees, according to the report.