Fitch Affirms Alisal Water Corporation's Senior Secured Debt at 'BB+'; IDR at 'BB-'
Source: Business Wire
--$7.9 million of outstanding 2007A senior secured taxable bonds affirmed at 'BB+';
--Issuer Default Rating (IDR) affirmed at 'BB-'.
The Rating Outlook is Stable.
At this time, Fitch also withdraws its 'BB+' rating on Alco's 2009 senior secured parity taxable bonds because the bonds never sold.
RATING RATIONALE:
--The utility's financial metrics are relatively weak, although rate base increases should enhance margins and ultimately improve liquidity levels.
--The California regulatory environment is relatively predictable, with the utility achieving rate relief as needed.
--The customer base is limited and includes a narrow economic profile.
--Capital needs are manageable, which should keep leverage ratios at reasonable levels.
--The utility provides an essential service and water supplies are sufficient to meet long-term demands.
KEY RATING DRIVERS:
--Changes in financial metrics.
--California regulatory environment.
SECURITY:
The bonds are secured by a security interest in pledged collateral, which consists of all tangible and intangible assets owned by Alco.
CREDIT SUMMARY:
At the end of calendar 2009 (Alco's fiscal year also ends Dec. 31), Alco's cash and cash equivalents improved to $376,000 from just $71,000 the prior year. However, liquidity remains weak at just 32 days cash. EBITDA covered long-term debt service by an adequate 1.5 times (x) for 2009, but other key financial metrics, although improved from 2008, remain relatively weak. FFO to debt was under 7% while EBITDA to interest was 1.9x and FFO to interest was under 2x. Alco's financial projections anticipate more favorable performance beginning in 2011 as a result of a current and expected rate base filings. Given Alco's limited financial flexibility, maintenance of the ratings will depend on timely rate relief to recover costs and generate adequate cash flows to fund capital needs.
Debt-to-total-capital and debt-to-EBITDA ratios were relatively high for the rating category at 88% and 7.7x in 2009, respectively. These levels have increased in recent years largely as a result of issuance of the 2007A bonds. Despite plans to issue additional debt in the near-term, Alco plans to convert a portion of its debt to equity, which ultimately should reduce leverage ratios.
Alco provides water service to around 28,000 persons in the eastern portion of the city of Salinas, California. As with other water providers, Alco's business profile benefits from a monopolistic market position. Water supplies are derived exclusively from groundwater sources, with available supplies sufficient to meet demands for the foreseeable future.
Applicable criteria available on Fitch's website at 'www.fitchratings.com' include:
--'Credit Rating Guidelines for Regulated Utility Companies,' dated July 31, 2007
--'Revenue-Supported Rating Criteria,' dated Dec. 29, 2009.
--'Water and Sewer Revenue Bond Rating Guidelines,' dated Aug. 6, 2008.
Additional information is available at 'www.fitchratings.com'.
Contact:
Fitch Ratings
Doug Scott, +1-512-215-3725 (Austin)
Kevin L. Beicke, +1-212-908-9112 (New York)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
