The Rating Outlook is Stable.
The 2005 series A and series 2010A bonds are secured by installment payments from the
KEY RATING DRIVERS
ADEQUATE FINANCIAL PERFORMANCE: The upgrade is based on the system's adequate financial performance while the city has been in bankruptcy. Concerns about the impact of the bankruptcy on system performance and pledged revenues have abated over time. Fiscal 2013 finished with a below average but sufficient all-in debt service coverage (DSC) of 1.5x.
STRONG CASH BALANCES: System liquidity has been very good over the past five years. Unrestricted cash finished fiscal 2013 with the cash equivalent of 710 days of operational costs (days cash on hand).
ELEVATED LEVERAGE BUT MANAGEABLE CAPITAL: The system maintains a high debt burden coupled with an extended amortization schedule. However, given the recent completion of the
SUFFICIENT SUPPLY: Completion of the DSWP provides a new resource for the city which is expected to provide sufficient supply through 2025.
WEAK SERVICE AREA: Although improving, the agricultural-based service area has been significantly affected by weak economic and housing conditions. Additionally, the condition of the
MAINTENANCE OF FINANCIAL PROFILE: A decline in all-in DSC significantly beyond levels currently forecast by management without other mitigating factors such as strong cash balances could lead to negative rating action.
The city is located in the
ADEQUATE FINANCIAL PEFORMANCE
The system finished fiscal 2013 with adequate all-in DSC of 1.5x, which ranks just below Fitch's median for the rating category. DSC has been mostly good yet volatile over the past five years, ranging from 1.5x to 2.7x on an all-in basis and 2.7x to above 6.0x on a senior-lien basis. The observed volatility is largely attributable to the quickly increasing operational and debt services costs associated with bringing the DWSP online.
Management's forecasts project all-in DSC declining to a below average but adequate 1.3x in fiscal 2014 and then 1.2x in 2015. Somewhat mitigating the decrease in coverage is the authority's strong cash balance, which has averaged a very robust 690 days of cash on hand since 2009. Fitch expects liquidity to remain strong over the intermediate term.
The system implemented significant rate increases in 2010 to 2012 to pay for increases in debt service costs associated with the DWSP. Going forward, rates should stabilize as the authority expects to make only inflationary-based changes. Considering Fitch's average monthly usage assumption of 7,500 gallons, rates are affordable at about 0.9% of median household income (MHI). However, actual usage is higher resulting in somewhat elevated monthly customer bills.
ELEVATED DEBT PROFILE BUT MANAGEABLE CAPITAL NEEDS
The system's weak debt profile is primarily due to financing of the DWSP. Overall, debt per customer and debt per capita are around 3x the national median. While improvement in the system's capital structure is expected over time, debt levels will continue to be a long-term concern as only 53% of principal amortizes within 20 years. However, the utility's capital needs are manageable with approximately
WATER SUPPLY ENHANCED WITH DELTA PROJECT
The DWSP allows the district to pump and treat 33,600 acre-feet (af) of water from the
WEAK SERVICE AREA
BANKRUPTCY NOT RATING DRIVER
The rating assigned by Fitch is based purely on the credit profile of the system given the general legal protection and special revenue status of pledged utility revenues.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's U.S. Municipal Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
--'Revenue-Supported Rating Criteria' (
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'2014 Water and Sewer Medians' (
--'2014 Outlook: Water and Sewer' (
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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