The bond rating for the San Diego County Water Authority was upgraded on May 9 by Standard & Poor's, a rating agency, from its current level of "AA-(minus)" to "AA." Two other rating agencies, Moody's and Fitch affirmed their credit ratings on May 10 regarding Water Revenue Certificates of Participation at levels of "Aa3" and "AA-," respectively. The Moody's rating was also accompanied by a "Stable Outlook" position for the Authority.
"The credit rating upgrade from Standard & Poor's is a very positive event for the Authority insofar as it recognizes the very strong financial condition of the Authority, and acknowledges the excellent job that the Authority is doing in managing its operations planning for the future," says Karen Brust, director of finance for the Water Authority.
The upgraded credit rating could save the Authority as much as $220,000 annually. Credit ratings are one of the primary criteria used by investors in determining the rate of return that they will require when purchasing the Authority's debt. It is estimated that the Standard & Poor's rating upgrade could decrease what the Authority pays in interest by as much as 10 basis points (or one tenth of one percent). The Authority's upcoming Water Revenue Certificates of Participation finance plan is projected at $300 million over 30 years. The savings would be approximately $220,000 annually or $3.3 million over the life of the term on a present value basis.
Standard and Poor's cited several key factors that led them to the upgrade. They were impressed with the new rate structure that will result in an increase in the percentage of fixed revenues, thus allowing the Authority to have more reliability in its financial projections. Strong reserve levels were also viewed favorably. Additionally, the Authority's management plans to diversify the region's water supply sources were considered sound reasons for the upgrade.
The "Aa3" and "AA-" level of ratings from Moody's and Fitch, respectively, are considered to be of high quality by all standards and enjoyed by only a few select water agencies in California. Both Moody's and Fitch recognized the strong financial condition of the Authority, particularly its sufficient reserve levels and debt service coverage. They also acknowledged the "superior" job of the Authority management in addressing the need for future diversification and reliability of water sources.
The San Diego County Water Authority is a public agency serving the San Diego region as a wholesale supplier of water from Northern California and the Colorado River. The Water Authority works through its 23 member agencies to provide a safe, reliable water supply to almost three million county residents.
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