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I AGREE
27 Mar 2012
SENIOR LIEN BONDS' Aa2 RATING AFFIRMED
New York, March 27, 2012 -- Moody's Rating
Issue: Subordinated Water Revenue Bonds, Refunding Series
2012A; Rating: Aa3; Sale Amount: $212,000,000;
Expected Sale Date: 4/3/12; Rating Description: Revenue:
Government Enterprise
Opinion
Moody's Investors Service has assigned an Aa3 rating to the Subordinated
Water Revenue Bonds, Refunding Series 2012A, of the City of
San Diego's Water Enterprise. We have also affirmed the Aa2 rating
on the utility's outstanding senior lien bonds and the Aa3 rating on the
outstanding subordinate bonds. The outlook on both ratings is stable.
RATING RATIONALE
The rating is partly based on the system's significantly improved financial
performance since 2004. However, projected slow growth in
water sales in the next several years and no new rate increases until
2014 dampen projected revenue growth and lower debt service coverage ratios,
which are quite low for the current rating level. However,
the city has a history of outperforming its debt service coverage projections.
If actual, combined senior and subordinate debt service coverage
levels beyond 2013 are in fact at the projected levels of as low as 1.3x,
the current rating would be under downward pressure. The fundamental
strength of the enterprise remains a key credit factor, including
its essentiality and its large, strong, and diverse service
area, which provides a relatively high degree of revenue stability.
The overall economic conditions in the service area have begun to show
improvement in the last year or so, including growth in assessed
values, transient occupancy tax and sales tax. The ratings
also reflect the utility's favorable debt position, which is likely
to remain manageable despite the expected addition of a of new debt during
the next five years necessitated by the current Capital Improvement Program.
The proceeds of the current issue, along with available reserve
funds, will be used to refund all or some of the utility's
outstanding subordinated revenue bonds.
STRENGTHS
--Large, highly diverse service area, now slowly
expanding
--Strong financial oversight with conservative budgeting
and projections
--Strong senior lien debt service coverage levels
--Strong unrestricted cash position
CHALLENGES:
--Below average debt service coverage levels for total debt
--Large capital Improvement Program
Outlook
The stable outlook for our rating on the water enterprise's debt reflects
the stable financial operations of the utility and our expectation that
the city will be able to implement its capital plan while preserving its
financial strength. However, slow growth in revenues is projected
to dampen debt service coverage ratios. The projections reflect
no rate increase until 2014 and the resulting coverage levels are very
low for the current rating level. If actual debt service coverage
levels beyond 2013 are in fact at the projected levels, the current
rating would be under downward pressure.
What Could Change the Rating--Up
--Significantly wider debt service coverage levels
--Significant improvement in the area economy
--Significant improvement In the utility's liquidity
position
What Could Change the Rating--Down
--Debt service coverage levels well below recent levels
--Significant deterioration In the utility's liquidity
position
The principal methodology used in this rating was Analytical Framework
For Water And Sewer System Ratings published in August 1999. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
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Kevork Khrimian
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Eric Hoffmann
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
MOODY'S: CITY OF SAN DIEGO'S SUBORDINATED WATER REVENUE REFUNDING BONDS RATED Aa3
No Related Data.
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