Fitch Rates Pasadena, California $21.5MM 2007 Water Bonds 'AA'
Source: Business Wire
The 'AA' rating reflects the system's strong historical coverage levels and an economically diverse and mature service area. Further supporting the rating are competitive rates even after implementation of projected rate increases to fund the system's capital plan. Credit concerns include timely execution of the capital plan, implementation of the planned rate increases and ongoing negotiations regarding clean-up of contamination in the city's local groundwater supply.
The system is an enterprise of city under the direction of Pasadena Water and Power (PWP). Water supply is derived primarily from Raymond Basin groundwater (40%) and imported surface water supplies (60%) from the Metropolitan Water District of Southern California (Metropolitan, revenue bonds rated 'AA+' by Fitch Ratings). The Raymond Basin, running underneath the city, provides a competitively priced local water source and supply diversity compared to many other retail water systems in southern California that depend heavily on imported water. Due to perchlorate concentrations in the water which exceed levels prescribed by the state's department of health services, only eight of the sixteen wells have been operational since 2002, the closures result in incremental pumping and imported water costs.
In January 2006, the National Aeronautics and Space Administration (NASA), agreed to fund the construction and operation of a treatment facility to remove perchlorates from four of the eight contaminated wells. The facility is in the design phase and is expected to be operational in 2009. The return of these four wells to operation will relieve operating pressure on the system. Negotiations between NASA and the city regarding the remaining four contaminated wells are ongoing. NASA denies any responsibility for the remaining contamination. Resolution of all contamination is essential to finalizing the Pasadena Groundwater Storage Program with Metropolitan which is a storage agreement that would increase the reliability of the city's supply during dry years.
Fitch views the system's financial profile as strong. Coverage levels have been consistently 2.3 times (x) or above since fiscal 1998 with even stronger coverage of 3.7x and 3.3x in FY2006 and FY2005, respectively. The recent coverage levels were elevated as a result in delays in funding certain capital projects. Management expects projected coverage levels to remain around 2.5x, which should provide sufficient cashflow to meet the city's goal of funding 35% of the its capital expenditures from revenues. Liquidity is adequate with $7.8 million in cash, or 117 days of operations. Transfers to the city are capped by City Charter at 6% revenues and are consistently kept at this level, which is not a drain on operations given the system's overall financial margins. The system is in the fifth year of an 18-year capital plan with an overall estimated cost of $234 million through 2020.
Located in Los Angeles County, the city is a well-developed community located north of downtown Los Angeles. The city's economy is anchored by the California Institute of Technology and the Jet Propulsion Laboratory (aerospace research). The recent completion of the Gold Line in 2003, a mass transit rail line linking the city with downtown Los Angeles, is spurring additional retail and commercial redevelopment. Although population increases have been modest, assessed valuations have grown by more than 73% over the 2000-2006 period.
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.
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