The Rating Outlook is revised to Stable from Positive.
The COPs are secured by payments made by the district in accordance with the installment purchase agreement. Installment payments are an absolute and unconditional obligation of the district and are backed by a pledge of net water and sewer revenues after payment of operating and maintenance expenses.
KEY RATING DRIVERS
UPGRADED ON STRONG FINANCIAL PERFORMANCE: Debt service coverage (DSC) has been consistently high relative to similarly rated peers, despite economic stress and variable weather conditions. Liquidity is extraordinarily strong.
CONNECTION FEE VOLATILITY: Revenues and DSC are more volatile than typical for a water-sewer utility due to significant connection fee revenue volatility. However, underlying water, sewer and property tax revenues provide a solid financial base even without connection fee revenues.
SOLID RATE DISCIPLINE: The utility's board has approved rate increases as necessary to maintain sound financial performance. Moderate rate increases were approved for fiscal 2014 and 2015. Rates remain affordable despite these increases.
HIGH DEBT BURDEN: Debt levels are high, and expected to remain elevated over the near term as new borrowing offsets amortization.
NO DROUGHT RATIONING NEEDED: The district's local water supplies are limited, exposing it to the supply uncertainties related to imported supplies and weather variability. However, recent regional investments in storage have thus far insulated the region from the impact of the current severe
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, particularly debt levels, rate-setting behavior and DSC. The Stable Outlook means that Fitch does not expect such shifts.
EVMWD provides water and sewer services to about 150,000 residents of western
FINANCIAL PERFORMANCE REMAINS STRONG
The district has maintained strong financial performance despite periods of economic stress and drought. All-in DSC averaged a strong 2.4x annual debt service over the past three fiscal years ended
Liquidity remains extraordinarily strong with significant capital reserves providing a healthy cushion to withstand periods of decreased development activity. The district had
The district's board has a track record of solid rate discipline with water rate increases averaging 6.3% over the five years ended 2014 and sewer rate increases averaging a more modest 1%. Rates remain moderate at 1.7% of median household income under Fitch's affordability calculations, which assume water use of 7,500 gallons per month and considers combined bills of less than 2% of median household income (MHI) to be affordable. Fitch's standard demand assumption is below actual water use in this arid area, suggesting somewhat less rate flexibility. But rate flexibility is judged to be adequate with rates comparing favorably to other
SIGNIFICANT DEBT BURDEN
The district's main credit risk is an elevated debt burden. Debt was about twice the median for rated water and sewer systems at
The district is dependent on imported surface water, exposing it to supply curtailments in a prolonged or severe drought. EVMWD imports almost 60% of its water from the
Fitch generally views the district's reliance on imported water as a credit weakness that reduces supply security and increases the cost of water. However, Met Water's significant investments in water storage in recent years have paid dividends in the current drought, allowing
HOUSING DOWNTURN WEAKENS SERVICE AREA ECONOMY
The service area is solid, albeit still recovering from a deep economic downturn. The city of
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was informed by information from CreditScope and IHS Global Insights.
--'Revenue-Supported Rating Criteria' (
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'2014 Water and Sewer Medians',
--'2014 Outlook: Water and Sewer Sector',
2014 Outlook: Water and Sewer Sector
2014 Water and Sewer Medians
U.S. Water and Sewer Revenue Bond Rating Criteria
Revenue-Supported Rating Criteria
Source: Fitch Ratings
Most Popular Stories
- Shia LaBeouf Plea Deal, Alcoholism Treatment
- Ohio State Band Chief Fired After Probe
- Hispanic Leader Goes the Extra Mile
- Stop-Start Engines Save Gas, Reduce Emissions
- Jennifer Lopez, Pitbull to Perform at Fashion Rocks
- Ukraine Says Russians Firing Across the Border
- Ford Q2 Net Profit up 6 Percent
- U.S. Weighs Refugee Status for Immigrant Kids
- Ricky Martin Joins 'The Voice ... Mexico'
- Morgan Stanley Ponies Up $275 Million to Settle SEC Charges