As part of ongoing surveillance, Fitch Ratings affirms Montara Water and Sanitary District, California''s $14.95 million outstanding series 2003 general obligation (GO) bonds at ''A+''. The Rating Outlook is Stable.

The ''A+'' rating reflects the district''s small yet wealthy and stable customer base, proximity to the deep employment bases of San Jose and San Francisco, stable financial operations, and modest capital needs, balanced by a moderately high debt burden, and above average utility rates. The bonds are secured by an unlimited ad valorem tax on the district''s mostly residential property owners.

The Stable Rating Outlook reflects the limitations to customer growth, which will insulate the district from risks associated with system capacity needs and curb the need for additional bonds. While growth constraints will keep the debt and tax burdens at their currently above average levels, Fitch cites the district''s wealthy and stable tax base as offsetting this concern.

The district''s tax base is mostly residential and diverse with the leading 10 taxpayers comprising 3.1% of market value. Very strong tax base growth from 2002 to 2008, at roughly 60%, has since moderated considerably as general economic conditions and the housing market have cooled. The strong tax base growth has eased the district''s debt burden from previously high levels. The overall debt per capita is currently $5,041, and 2.8% of property value (versus $6,033 per capita and 4.7% in 2003). The district''s capital needs are limited and will be paid for by system charges, which will help keep debt ratios manageable although above average.

The district''s finances are well managed with operating surpluses, net of depreciation, demonstrated in two of the past three fiscal years. When incorporating the non debt service-related property taxes allocated to the district for operations, an even stronger financial profile emerges. Liquidity, as measured by days'' cash on hand, is solid with close to 300 days in FY 2008. The district is projecting a slight operating deficit for FY 2009, while break-even operations are budgeted for fiscal 2010. The district recently implemented rate increases, and while combined monthly utility bills for water and sewer service are high at $110, Fitch sees the district''s high median household income of approximately twice the state average as an offsetting factor. Additionally, Fitch views positively management''s willingness to implement system-wide rate increases to meet capital and operating requirements.

The district encompasses 4,500 acres and is located 25 miles south of San Francisco. This primarily residential district (population 5,500) includes the unincorporated communities of Montara and Moss Beach, and provides water and sanitary sewer services to 1,777 mostly residential customers. Development is limited given the district''s coastal location. The area''s above average wealth, low foreclosures levels, and growth limitations should help keep home values stable.

Additional information is available at ''www.fitchratings.com''.

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Contacts:

Fitch Ratings
Andrew DeStefano, 212-908-0284, New York
Robert Sakai, 415-732-5628, San Francisco
or
Media Relations:
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Email: cindy.stoller@fitchratings.com