Fitch Affirms San Diego County Water Authority, CA's Extendable CP 'F1+'

AUSTIN, Texas--()--Fitch Ratings has affirmed the following rating on extendible commercial paper (ECP) notes periodically issued by the San Diego County Water Authority, CA (the authority):

--Up to $100 million ECP notes, series 1 at 'F1+'.

Authorization for the ECP notes is being increased to $100 million from $50 million in aggregate with the additional amount expected to be used to take-out certain outstanding authority commercial paper notes.

In addition, Fitch affirms the following outstanding ratings:

--$424.2 million water revenue certificates of participation (COPs), series 1998A, 2005A, and 2008A at 'AA+';

--$564.2 million water revenue bonds, series 2010A and 2010B (taxable) issued by the San Diego County Water Authority Financing Agency on behalf of the authority at 'AA+';

--$990 million water revenue bonds, series 2011A, 2011B, 2013A, 2015A, 2016A and 2016B at 'AA+';

--$87.7 million subordinate lien water revenue refunding bonds, series 2016S-1 at 'AA'.

The Rating Outlook on all bonds and COPs is Stable.

SECURITY

The water revenue bonds and COPs are payable from the authority's water system net revenues. The series 2016S-1 bonds are on parity with the ECP notes, and have a subordinate lien on net revenues.

KEY RATING DRIVERS

PRUDENT AND STABLE FINANCIAL MANAGEMENT: The authority adheres to prudent financial management practices and engages in comprehensive long-term planning aimed at securing a diverse and reliable future water supply.

BROAD SERVICE AREA: The authority provides wholesale water service to 24 member agencies across a large service area in San Diego County.

WATER SUPPLY DIVERSITY: Water supplies have been diversified as a result of significant capital investments made in the last two decades, improving water supply reliability and drought-resiliency.

MEMBER SUPPORT FOR RATES: Fitch anticipates that continued member support for costs associated with supply diversification will facilitate rate increases to preserve financial margins at consistent levels.

HIGH DEBT: Capital spending has been substantial in recent years, primarily funded by debt. As a result, the authority's debt levels are high and amortization slow.

RATING SENSITIVITIES

PRESSURE FROM STATEWIDE DROUGHT: Pressure on San Diego County Water Authority's financial margins could occur if water sales fall below already low forecasted levels in fiscals 2016 and beyond. The authority plans to use reserves in its rate stabilization fund to offset lower water revenues and rising costs in fiscals 2017-2018 but reserves are expected to remain healthy and above internal minimum targets.

For more information on the authority, see Fitch's press release 'Fitch Rates San Diego County Water Authority, CA's Sr/Sub Water Revs 'AA+'/'AA'; Outlook Stable', dated May 25, 2016, available on Fitch's web site at 'www.fitchratings.com'.

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

Applicable Criteria

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Water and Sewer Revenue Bond Rating Criteria (pub. 03 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869223

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005987

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005987

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Doug Scott
Managing Director
+1-512-215-3725
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Kathy Masterson
Senior Director
+1-512-215-3730
or
Tertiary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Doug Scott
Managing Director
+1-512-215-3725
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Kathy Masterson
Senior Director
+1-512-215-3730
or
Tertiary Analyst
Shannon Groff
Director
+1-415-732-5628
or
Committee Chairperson
Dennis Pidherny
Managing Director
+1-212-908-0738
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com