Fitch Ratings recently updated its ratings on various water agencies in California, Oregon, and Texas.
Water District of Southern California was given the rating of ‘AA+’ on its senior lien and subordinate lien water revenue bonds and term bonds, and bank bond ratings associated with water revenue bonds series 2016B-1, series 2016B-2, 2017 authorization series A, series 2018A-1, series 2018A-2 and series 2021A. In addition, ‘AA+’/’F1+’ rating was assigned on its subordinate lien water revenue bonds (SIFMA index mode), series 2017C, 2017D and 2017E. Fitch Ratings explained:
The ‘AA+’ IDR reflects MWD’s very low leverage, measured as net adjusted debt to adjusted funds available for debt service (FADS), within the context of the district’s very strong revenue defensibility and operating risk profiles, both assessed at ‘aa’. MWD’s revenue defensibility is supported by the district’s very strong purchaser credit quality, independent rate-raising ability and unlimited ability to reallocate costs. The district manages sales volatility by maintaining a strong financial cushion and robust liquidity. MWD’s operating risk assessment is supported by the district’s very low operating cost burden, coupled with its low life cycle ratio and moderate capital needs.
To date, drought conditions have not negatively affected the rating. Fitch expects MWD will maintain financial resiliency for at least the intermediate term through planned rate increases, which will support FADS and overall cash flow despite declining demand assumptions.
Tualatin Valley Water District, OR was given a rating of ‘AA+’ on its $387.75 million water revenue bond, a WIFIA loan. In assigning said rating, Fitch Ratings explained:
The district’s ‘AA+’ IDR and WIFIA loan rating reflects its very low but rising leverage within the framework of very strong revenue defensibility and very low operating risk. The district is moving into a capital-intensive phase to support future water supply and resilience on a regional basis with a new water source on the mid-Willamette River with the construction of the Willamette Water Supply System (WWSS) and Willamette Intake Facilities (WIF).
To support this capital expansion the system has seen significant rate increases over the past five years. As a result, the district expects to continue to adopt above average rate increases through fiscal 2025. The district maintains rate setting autonomy and good rate flexibility despite significant adopted and planned increases.
Westlands Water District, CA was given a ‘A+’ rating on its following obligations: $198.0 million San Luis Unit/Westlands Water District Financing Authority revenue bonds series 2020A, $15.5 million San Luis Unit/Westlands Water District Financing Authority subordinate revenue bonds, series 2020B, $33.5 million Westlands Water District refunding revenue bonds series 2016A, and $14.5 million Westlands Water District Revenue Certificates of Participation series 2007B. Fitch Ratings reasoned:
The ‘A+’ IDR and issue ratings reflect the district’s financial profile, which reflects very low leverage within the context of the district’s strong revenue defensibility, assessed at ‘a’ and midrange operating risk profile, assessed at ‘bbb’. The revenue defensibility assessment is constrained by the composition of and concentration within the district’s customer base, while the operating risk assessment is constrained by a sustained decline in the availability of water supply. Together, these constraints limit the district’s ratings, and support Fitch’s view of the district’s increasingly complex operating environment and the potential impact on the district’s low-cost supply from the Central Valley Project (CVP).
Los Angeles Department of Water and Power, CA was assigned a ‘AA’ rating on its water system revenue bonds series 2022C. In addition, its ‘AA’ rating has been affirmed on the following bonds: $5.3 billion water system revenue bonds (prior to refunding), $182.3 million in bank bonds corresponding to the variable rate series 2001B-1, B-2, B-3 and B-4 bonds, $200 million in bank bonds corresponding to the variable rate series 2019 A-1 and A-2 bonds, and $200 million in bank bonds corresponding to the variable rate series 2021 A-1 and A-2 bonds. In affirming said ratings, Fitch ratings reported:
The ‘AA’ bond and bank bond ratings and ‘aa’ SCP reflect LADWP’s very strong revenue defensibility, supported by a large and diverse retail customer base in the service territory of the city of Los Angeles and a rate structure that can decouple demand from revenue generation. Stability in the ‘aa’ revenue defensibility assessment is largely dependent on continued implementation of the automatic pass-through adjustments and recovery of targeted base rate revenue as allowed under the system’s dynamic rate structure. The system’s very strong operating risk profile is similarly assessed at ‘aa’ based on a very low, albeit increasing, operating cost burden, stable life cycle ratio and healthy levels of capex.
Fort Worth, Texas’ was given a ‘AA’ rating on its water and sewer system revenue bonds series 2022, water sewer system refunding bonds taxable series 2022, and $741.245 million (pre-refunding) outstanding water and sewer system revenue bonds. Fitch Rating reported:
The system’s ‘AA’ bond rating and ‘aa’ SCP assessment reflect a very strong leverage profile within the business framework of very strong revenue defensibility and very low operating risk. Leverage, defined as net adjusted debt to adjusted funds available for debt service, is very low at 4.7x in fiscal 2021. Contributing to the very favorable leverage metric, the city adopted a minimum cash balance policy in fiscal 2015, which resulted in fiscal 2021 finishing with a five-year high cash balance of over $180 million.
Lastly, Texas Water Development Board was given a ‘AAA’ rating on its $264.595 million state revolving fund (SRF) revenue bonds new series 2022 and $1,187.175 million SRF revenue bond. In giving the rating, Fitch Ratings said:
Approximately 78% of the TWDB’s SRF obligor portfolio is determined to be investment grade, resulting in strong overall pool credit quality. Obligor security is also strong, with all pool obligors backed by utility or general obligation pledges, or a combination of utility/general obligation pledges. TWDB maintains solid underwriting guidelines and monitoring procedures. Delinquencies are very rare and no permanent defaults have occurred in the TWDB’s CWSRF/DWSRF programs’ histories.
