I-TEAM: JEA’s credit rating dinged over shake-ups

S&P cites ‘events suggesting governance instability and evidence of weak controls’

JACKSONVILLE, Fla. – A ding to JEA’s credit rating is the latest fallout from a since-shelved plan to sell the city-owned utility.

Standard & Poor’s on Friday lowered its long-term rating on the utility’s water and sewer system’s revenue bonds and its subordinate revenue bonds, from AAA and AA respectively, to AA+, citing uncertainty over its leadership.

“This rating action is based on uncertainty surrounding transparency and independence of both senior management and the board of directors,” S&P Global Ratings credit analyst Edward McGlade said.

The rating decreases follow a major shake-up at JEA, including the ouster of its CEO and significant turnover on its board of directors.

“The downgrade and developing outlook…reflect recent events suggesting governance instability and evidence of weak controls on the heels of the utility terminating its CEO, the departure of the CFO, and the resignation of five of the six sitting board members,” McGlade said.

“In our view, these events are not in keeping with the former ratings,” he added.

SPECIAL SECTION | Tracking the JEA saga as it unfolds

So, what does that mean? In a nutshell, JEA is considered slightly less likely to pay back its debts, which total more than $1.15 billion, than it was in years past.

On Monday, JEA’s leadership was under scrutiny as a City Council committee investigating the failed sale heard evidence suggesting that management presented misleading information to the utility’s board.

“The people of Jacksonville were lied to over and over and over again to show that JEA was in this terrible position, but it actually wasn’t,” City Councilman Rory Diamond said at the meeting.

Attorneys from the law firm of Nelson Mullins said JEA’s management presented details to the board that lacked key context. They added that JEA’s legal team knew in June that a controversial bonus plan was illegal – yet management tried to work around those restrictions instead of telling the board.

It’s findings like those that has union leaders such as Ronnie Burress saying there is no trust in the few members of JEA’s senior leadership team that remain in positions of authority.

“There was a list of 529 jobs to be cut and they were going to cut whole departments out,” Burress said. “And that’s a shame. That it was going to cut people’s jobs, but all for lies.”

As McGlade noted in his analysis, JEA is expected to remain financially strong enough to cover its capital improvement plan over the next few years. But that might not be enough to avoid another downgrade.

“Uncertainty surrounding senior management and its ability to maintain or follow current policies and procedures in the water and sewer operations cause us to believe it is more likely than not that the rating will be lowered over the next two years,” McGlade said.

On the other hand, he did not rule out a potential rating upgrade down the road. He said that would hinge on the emergence of a “strongly independent” leadership team and a return to the norm for the utility’s “policies and procedures.”

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