Proceeds of the series 2014A bonds will advance refund fixed rate bonds for uniform savings and pay costs of issuance. Proceeds of the 2014B bonds will refund outstanding variable-rate bonds with fixed rate debt, pay swap termination fees, and pay costs of issuance. Proceeds of the 2014C bonds will fund part of the district's ongoing capital program. The bonds will not have debt service reserve funds. The 2014A & B bonds are expected to price on
Fitch also affirms the following outstanding
The Rating Outlook is Stable.
Bonds are payable from net revenues of the water system. Tax receipts are not pledged to bondholders but must be used to pay operating expenditures. The CP notes have a subordinate lien on net water revenues.
KEY RATING DRIVERS
STRONG SERVICE AREA:
LOWER WATER SALES: Debt service coverage declined between 2008 and 2012 due to lower water sales, the economic recession and escalating debt service. While water sales have remained at lower levels, financial recovery is occurring due to cost cutting and adopted rate increases.
WATER SUPPLY DIVERSITY AND REDUNDANCY: Water supply reliability was improved by completion of the
HIGH DEBT LEVELS: Debt levels will likely remain high for some time, even with the district's planned shift to a higher use of pay-as-you-go capital funding.
LONG-TERM PLANNING PRACTICES: Long-term financial, capital and water supply planning practices at the district provide a strong enhancement to credit quality.
SHORT-TERM RATINGS: The 'F1+' ratings on the series 2009A index bonds and extendable CP are based on
PRESSURE FROM STATEWIDE DROUGHT: Pressure on financial margins could occur if water sales fall below assumed levels if severe multi-year water rationing were to be implemented. Sustained decline in financial margins and reserve levels below management's targeted levels could put pressure on the rating.
EBMUD WELL POSITIONED TO HANDLE CURRENT DROUGHT
The district's primary water supply is provided by its water rights in the
Freeport provides a dry-year water supply of 133,000 af. Freeport came on line in
The district's storage capacity provides additional security through stored water reserves of 472,000 af. This is down from 647,000 af in storage one year ago but still compares favorably to annual water demand of around 200,000 af (168 million gallons per day). The district may use additional storage if 2015 is also very dry but will also add most of the CVP water from 2014 to its storage. Only about 23,000 af of the 66,500 af CVP allocation is expected to be used in April-
HIGH DEBT LEVELS SHOULD BE MANAGEABLE
RATE INCREASES DESIGNED TO IMPROVE FINANCIAL MARGINS
FINANCIAL METRICS STABILIZING WITH RATE INCREASES
Financial performance declined between fiscal years 2008 and 2012 as a result of lower water sales, increasing debt service, and a reduction in growth-related connection fees. In response to these factors, the district raised rates, restructured debt payments from 2012-2015 into later years, and cut operating costs.
Fitch-calculated debt service coverage in fiscal 2012 was 1.50x of revenue bonds and 1.42x of all obligations, including subordinate state loans and interest on commercial paper. Fitch's coverage includes amounts transferred in from system capacity charges (connection fees) collected in previous years. All-in coverage in fiscal 2012 without the transferred funds would have been 1.32x. Coverage levels in fiscal 2012 were also boosted by the release of
Debt service coverage improved to 1.68x on all obligations in fiscal 2013 without the use of transferred funds or capitalized interest. However, the coverage does reflect lower principal payments in this year as a result of the restructuring done in 2012. All-in debt service will increase from
WEAK LEGAL COVENANTS
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'Rating U.S. Public Finance Short-Term Debt' (
U.S. Water and Sewer Revenue Bond Rating Criteria
Rating U.S. Public Finance Short-Term Debt
Source: Fitch Ratings
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