Fitch Ratings assigns a long-term underlying rating of 'A+' to the Castaic Lake Water Agency, California's (CLWA) approximately $67 million refunding revenue certificates of participation (COPs), series 2009A. Fitch also affirms the long-term underlying ratings of CLWA's outstanding COPs as follows:
--$80.8 million of outstanding senior lien COPs (net of refunding) at 'AA-';
--$169.9 million of outstanding parity lien COPs, which are subordinate to the senior lien COPs, at 'A+'.
The 2009A COPs will be sold via negotiation as early as the week of Oct. 22, 2009. Proceeds from the 2009A COPs will be used to current refund CLWA's outstanding 2001A COPs, which are senior lien obligations. The Rating Outlook for all ratings is Stable.
The ratings are based on CLWA's solid financial position and sufficient water supplies to meet long-term demands. The rating also takes into consideration CLWA's moderately high debt levels and the limited economic base of the service area, which is largely residential in nature. Near- to medium-term capital needs are manageable and are expected to be funded predominantly from proceeds from a prior issuance, although some additional debt issuance is anticipated. CLWA has adopted a multi-year rate package which is expected maintain financial margins.
Financial operations of the agency are favorable, with the most recently audited fiscal year (2008) posting total annual debt service (ADS) coverage of 1.8 times (x). Liquidity and cash flows for the same period were very healthy with over 1,300 days cash and surplus revenues equal to over 2x depreciation expense. Fiscal 2009 figures are projected to be equally strong. For fiscal 2010 CLWA faces some pressure, predominantly on the revenue side as a result of drought conditions and slowing connection fees. CLWA also has budgeted for a reduction in ad valorem property taxes as a result of capture by the state. However, CLWA's board has taken appropriate measures to increase its rate base annually through fiscal 2012. This is expected to lead to continued solid operating performance in fiscal 2010 and out-year projections indicate further improvement.
Capital needs through fiscal 2012 total approximately $160 million and are designed to increase supplies and improve system reliability. The majority of capital costs are expected to be funded from proceeds of a previous issuance, although CLWA may issue around $60 million-$70 million in the fiscal 2012 timeframe to supplement available funding. While current debt levels are moderately high, the overall debt burden, including the proposed offering, is not expected to rise significantly.
Located predominantly in Los Angeles County approximately 35 miles northwest of downtown Los Angeles, CLWA provides wholesale water service to a population of approximately 260,000 persons through four retail agencies. The agency acts as a swing supplier, providing around 50% of the region's water supplies, with the remainder derived from members' own local sources. The agency's water supplies mostly come from Northern California's San Francisco Bay/Sacramento-San Joaquin River Delta via the State Water Project (SWP). While SWP supplies have been affected by recent litigation, CLWA projects that it has sufficient allocations from the SWP, combined with other water resources, to meet all retail demands through at least 2030.
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Fitch Ratings, Austin
Doug Scott, +1-512-215-3725
Julie
Seebach, +1-512-215-3740
or
Sandro Scenga, +1-212-908-0278
(Media
Relations, New York)
sandro.scenga@fitchratings.com
