The notes will be sold via competitive sale on or about
In addition, Fitch affirms its 'AAA' rating on the district's following outstanding debt:
The Rating Outlook is Stable.
The obligations are secured by installment purchase payments from the district to the
KEY RATING DRIVERS
LARGE, AFFLUENT SERVICE AREA: The district's essential role as the wastewater service provider to a large and wealthy service area of 2.5 million people and flat rate structure provide a high degree of revenue stability.
STRONG FINANCIAL PERFORMANCE: Debt service coverage (DSC) averaged a healthy 2.7x over the three fiscal years ended
GOOD RATE FLEXIBILITY: Rates remain very affordable at just 0.4% of the county's median household income (MHI).
REDUCED REGULATORY RISK: The district completed a large, multiyear capital plan in 2012, increasing sewerage treatment levels to full secondary standards and reducing regulatory risks with the lifting of a consent decree that governed its voluntary shift to higher treatment standards.
MODERATE DEBT BURDEN: The long-term debt burden is below average at
STRONG MANAGEMENT PRACTICES: Sound reserve policies, a robust strategic planning process and long-term capital planning drive long-term financial and rate planning processes that have consistently delivered strong financial results.
SHORT-TERM DEBT STRATEGY: The 'F1+' notes rating reflects OCSD's long-term credit quality and implied market access to remarket the notes. The district has used the certificate anticipation note structure since 2008 and refinanced the notes each year with a subsequent issue.
SHIFTS IN FUNDAMENTALS UNLIKELY: The rating is sensitive to shifts in fundamental economic, financial, debt and management changes, particularly any erosion of the district's historically strong rate discipline. The Stable Outlook means that Fitch believes such shifts are unlikely.
OCSD provides wastewater treatment services to the northern and central portions of
CONSISTENTLY STRONG FINANCIAL PERFORMANCE
The district's financial performance remained strong throughout the recent period of economic weakness. All-in DSC was 2.6x in fiscal 2012 and 2.8x in 2013 by Fitch's calculation. Coverage is forecast to remain close to 3.0x through 2018 in a reasonably conservative district forecast.
Liquidity remains very strong with
The district's primary revenue streams are quite stable, with property taxes providing about 20% of revenues and sewer fees providing 70%. Property taxes were little changed during the housing downturn and have grown the past three years. The district's service area includes relatively built-out and well-established communities such as
GOOD RATE DISCIPLINE AND FLEXIBILITY
The district's board has been quite disciplined in raising rates to support the district's shift to full secondary treatment of sewerage discharges. Rate increases have averaged 8.9% over the past five years and are scheduled to decline to more moderate inflationary increases over the current five-year forecast horizon. Even after years of large rate increases, rates remain very affordable at
DECREASING REGULATORY RISK, CAPITAL DEMANDS
OCSD has managed significant regulatory and capital burdens well. In 2002, the district's board decided to upgrade its treatment wastewater effluent discharged into the ocean to full secondary treatment. The district historically operated under a 301(h) waiver, allowing for less than full secondary treatment. The district voluntarily entered into a consent decree concurrently with the issuance of a new ocean discharge permit. The consent decree called for implementation of full secondary treatment by
The district completed the required treatment upgrades ahead of schedule and received a standard National Pollutant Discharge Elimination System permit with no treatment waiver in 2012. The consent decree was lifted in
Treatment plant upgrades also position the district well vis-a-vis its capital spending cycle. The district's
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' (
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
Source: Fitch Ratings
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