Water Authority Receives Strong Ratings from Credit Agencies
July 01, 2011
The San Diego County Water Authority’s long-term senior lien credit ratings of AA+, AA+ and Aa2 were affirmed today by…
The San Diego County Water Authority’s long-term senior lien credit ratings of AA+, AA+ and Aa2 were affirmed today by Standard and Poor’s, Fitch and Moody’s, respectively. In addition, the three agencies issued the Water Authority new subordinate lien credit ratings of AA, AA and Aa3, respectively. These excellent credit ratings will help the Water Authority optimize its debt portfolio and minimize the cost of financing important water supply reliability projects.
“These ratings are great news for our ratepayers, because they will help keep the cost of financing our major capital projects down,” said Water Authority Finance Director Eric Sandler.
The rating agencies cited several reasons for their latest ratings. They included the Water Authority’s prudent financial management, proactive cost-control measures to mitigate the financial impact of reduced sales volumes, high fixed revenues as a percentage of fixed expenditures, and supply diversification efforts that have positioned the Water Authority to absorb the water supply impacts of recent drought conditions.
Debt service to finance the Water Authority’s $3.5 billion Capital Improvement Program – vital water infrastructure projects such as dams, large-diameter pipelines, a treatment plant, hydropower facilities and more – is one of the Water Authority’s largest annual expenditures. The Water Authority estimates debt service costs represent $280 million, or 20 percent of its total budget, during the two-year budget period that starts today and runs through June 30, 2013.
Outstanding debt currently includes about $2 billion in long-term debt (Certificates of Participation and Revenue Bonds, including Build America Bonds) and $460 million in variable-rate debt (Tax-Exempt Commercial Paper).
The Water Authority is restructuring its variable-rate debt portfolio to take advantage of favorable market conditions. The Water Authority already has renegotiated terms on $360 million in variable-rate debt. In July, it plans to issue up to $100 million in subordinate-lien, five-year, fixed-rate bonds to refund $100 million in outstanding variable-rate debt.
“The sale of these bonds will help diversify our debt portfolio and mitigate near-term volatility in our financing costs,” Sandler said. “The strong ratings we received today will help the Water Authority secure lower interest rates that will save ratepayers money.”
In addition, the Water Authority Board of Directors has approved refunding part of its long-term, fixed-rate debt to further reduce debt service costs. The Water Authority plans to issue these long-term refunding bonds in late July.
The credit ratings reflect the credit worthiness of Water Authority debt when compared to other fixed income investments. Subordinate lien credit ratings are typically at least one level below senior lien credit ratings. The Water Authority’s current credit ratings are considered high quality by all standards and are held by only a few select water agencies in California.
The Water Authority is recognized nationally for its sound financial management practices. It has received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada for 11 consecutive years. It also received the 2010 Excellence in Budgeting Award from the California Society of Municipal Finance Officers.