S&P Raises Water Authority’s Senior Lien Credit Rating to AAA
May 25, 2016
S&P Global Ratings today announced that it has upgraded the San Diego County Water Authority’s senior lien credit rating to…
S&P Global Ratings today announced that it has upgraded the San Diego County Water Authority’s senior lien credit rating to AAA, a boon for ratepayers who will benefit from lower financing costs. This marks the first time the Water Authority has achieved a AAA senior lien rating, the highest offered by S&P.
The ratings service – one of the big three international ratings agencies – credited the upgrade to strong financial management, robust drought planning, increased storage capacity due to the San Vicente Dam Raise, and reserves for managing contingencies, among other factors.
“The upgrade reflects the authority’s successful integration of its increased storage capacity and desalinated water supply into its system while weathering one of the driest periods on record in the state without significant impact to its rates or debt burden,” S&P said in a statement.
The improved ratings resulted from the Water Authority’s actions to refinance $340 million in 2016 A&B long-term water revenue refunding bonds and $86 million in a 2016 S-1 five-year, short-term refunding note. The bonds will be priced in early June, and the higher rating from S&P is expected to lower the interest rate that the Water Authority will have to pay. Since 2005, the Water Authority has saved $78 million through five previous bond refundings, and the upcoming refunding is expected to save approximately $50 million.
“Our history of prudent financial stewardship benefits the entire region in many ways,” said Mark Weston, Board chair for the Water Authority. “The AAA rating is a validation of our efforts – not only to build and maintain a world class water supply, but to build and maintain a strong financial position through strategic planning, rigorous forecasting and unfailing execution of our goals.”
The two other major ratings agencies also issued ratings for the Water Authority, echoing much of what S&P said.
Moody’s Investor Service affirmed its Aa2 rating for the Water Authority’s senior lien debt, praising the Water Authority for being “vigilant” about charges and restrictions imposed by its largest supplier, the Metropolitan Water District of Southern California. “Most recently, the Authority was awarded $188.3 million in damages plus interest by a San Francisco Superior Court judge for [MWD] water rates charged from 2011-2014 that violate the cost of service requirements under the state’s constitution,” said Moody’s credit opinion on May 24. “Importantly, the court ruled that MWD had been undercalculating the Authority’s preferential rights to MWD water, significantly increasing the Authority’s statutory water rights by tens of thousands of acre-feet per year. While the decision is under appeal, it provides a strong example of the Authority’s intent focus on supplies and charges.”
Fitch Ratings affirmed its AA+ senior lien rating for the Water Authority, saying the agency “adheres to prudent financial management practices and engages in comprehensive long-term planning aimed at securing a diverse and reliable future water supply.” Fitch also said that its ratings were supported by Water Authority investments that have improved the region’s water supply reliability and drought resiliency.
“When investors hear our story, they are impressed by 25 years of focused and successful efforts to vastly improve water supply reliability, actively manage our debt portfolio, provide predictable rates and invest in strategic capital improvements,” said Lisa Marie Harris, finance director for the Water Authority. “We have strong debt coverage, healthy reserves and committed management – a recipe for continued success for years to come.”
More information about the Water Authority’s finances is at www.sdcwa.org/finance-investor-relations.