Fitch Ratings assigns an 'F1+' rating to East Bay Municipal Utility District (MUD), California's (the district) approximately $315 million extendable municipal commercial paper (CP) notes (water series), expected to be issued beginning the week of April 1. At this time, Fitch also affirms the 'AA' rating with a Stable Outlook on the district's $1.4 billion in outstanding subordinated water revenue bonds.
The notes may be issued in an aggregate principal amount, limited only in that the outstanding aggregate principal amount at any one time, together with all other evidences of indebtedness issued and outstanding, shall not exceed the lesser of either: (a) the annual average of the district's total revenue for the three preceding years, or (b) 25% of the district's total outstanding bonds issued. The notes will be extendable municipal CP with original maturities from 1-120 days from the original issue date of each note. However, the district reserves the right to extend the maturity to up to 270 days from the original issuance date. If the notes are extended to the extended maturity date, the interest rate would be reset to the greater of: (a) SIFMA plus a fixed number of basis points, or (b) a fixed interest rate, either of which is determined based on the CP rating at the time. However, the reset shall not exceed a maximum interest rate of 12% per annum.
While the district may reissue the extendable municipal CP on or after each original maturity date, the district has covenanted in the extendable municipal CP resolution to maintain sufficient capacity under their subordinated water revenue bond authorization to redeem the full outstanding amount of extendable municipal CP.
The 'F1+' rating reflects the structure of the notes, which effectively act as bond anticipation notes. Also underlying the rating is the credit quality of the subordinated water revenue bonds anticipated to be issued to ultimately fund the CP notes and the market access of such revenue bonds, as evidenced by recent bond sales. Fitch rates the district's subordinated water revenue bonds 'AA'. The underlying rating of the subordinated water revenue bonds reflects the district's sound financial profile, extensive planning efforts and formalized policies, and broad service area economy. Other credit drivers include the district's high existing debt levels and slow principal amortization. The rating incorporates the possibility that the district will issue senior water revenue bonds, although restrictive covenants and lack of issuance to date of such debt lead Fitch to believe it is unlikely.
The notes provide funding for various capital improvement projects associated with the district's $982 million fiscal 2009-2012 capital improvement program. Note interest is secured by available water revenues, which equals gross revenues of the district's water system, including any amounts deposited from the rate stabilization fund, less any payments of operations and maintenance expenses, amounts withdrawn for deposit in the rate stabilization fund, all amounts required to be paid under the water revenue bond resolution, and all amounts required to be paid under any subordinated water revenue bond resolution, and on parity with $315.0 million in outstanding prior CP notes. Note principal is also secured by available water revenues, and ultimately the district intends the sale of subordinated water revenue bonds for payment of principal on the notes.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings
Doug Scott, 512-215-3725, Austin
Kathy
Masterson, 415-732-5622, San Francisco
or
Media Relations:
Sandro
Scenga, 212-908-0278, New York
Email: sandro.scenga@fitchratings.com