Fitch Affirms Western Municipal Water Dist Facilities Auth, California $45.7MM Revs at 'AA-'
Source: Business Wire
The 'AA-' rating reflects the district's growing service territory, timely wholesale cost recovery, limited operational risk, and a healthy financial position, albeit declining from previous levels. Credit concerns relate primarily to the likely need for a retail rate increase and revenue dependence on property taxes and connection fees. The district anticipates moving to a reliance on property taxes and connection fees for capital investment as opposed to paying operating expenses, which would provide credit protection against a downturn in development in the service territory. The rating also reflects a concentration in water supply and dependence on imported water.
The district consists of a 527-square mile area in western Riverside County and serves a population of approximately 630,000. The district provides retail and wholesale water services and retail wastewater services. The district is primarily a wholesale agency (wholesale revenues account for 70% of total revenues). Wholesale water customers include the Box Springs Mutual Water Company, the cities of Corona, Riverside (rated 'AA' by Fitch), and Norco, the Eagle Valley Mutual Water Company, the Elsinore Valley Municipal Water District (rated 'A+' by Fitch), the Rancho California Water District (rated 'AA' by Fitch), and the Lee Lake Water District. The district's retail water service territory is an area south of the city of Riverside with 21,455 customers. Wastewater service is provided to 6,900 retail customers.
As a member of the Metropolitan Water District of Southern California (MWD; rated 'AA+' by Fitch), Western imports almost all (96%) of the water delivered to its retail customers from MWD. The remaining water is provided by three wells owned by the district and a small desalter facility that treats brackish groundwater. Water provided to its wholesale customers is entirely purchased from MWD. MWD receives the majority of its water from the State Water Project (SWP), which has recently been the subject of state and federal lawsuits as well as a larger political debate within the state that could impact the future availability of SWP water to MWD. If this resource were to be reduced, Western has very few alternative supplies. As part of its capital plan, the district is considering the development of the Riverside-Corona Feeder, which, although costly, has the potential to reduce the district's reliance on imported water through the delivery of stored local run-off from the San Bernadino and Chino Basins.
Financial performance remains strong, despite some declines from historical levels. Debt service coverage was 3.0 times (x) in fiscal 2006, down from over 6.8x in the previous two years. The district's revenues declined as a result of the state's decision to decrease property taxes allocated to special districts in fiscals 2005 and 2006. Property tax receipts increased in fiscal 2007 and account for a substantial component of revenues (estimated at $12.8 million as compared to operating revenues of $69.8 million). Connection fees are also a significant component of revenues, providing $8.6 million in fiscal 2006. In addition, the district's overall revenues have experienced some variability due to its substantial reserve levels (424 days operating cash in fiscal 2006) and wide fluctuations in investment income. Investment income fell to $1.2 million in fiscal 2006, down from $6.8 million in fiscal 2005. The decrease reflected lower interest rates but the district also realized a loss of $2.7 million on the sale of longer-term investments. The district's investment portfolio has a longer weighted average maturity than similar municipal entities with over 20% of its investments having maturities between six and 10 years and a sizable portion invested in corporate notes.
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