SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings for Lomita, California (the city) as part of its continuous surveillance effort:
--$7.4 million of outstanding revenue certificates of participation (COPs), series 2008 at 'A+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The water system's (the system) financial profile is sound and includes significant liquidity, although these levels may decline somewhat as the system utilizes cash balances for pay-as-you-go capital purposes.
--As a small, largely built-out bedroom community for the greater Los Angeles and Orange County labor pools the city has measured growth and manageable capital needs.
--The projects funded by the 2008 bonds largely have been completed, providing diversity in terms of water supplies and storage.
--The city has significantly enhanced its water revenues by reconceptualizing its water rate schedule and implementing relatively large rate hikes in recent years.
KEY RATING DRIVERS:
--Continued sound financial performance in light of potential draws on liquidity will be key to maintaining the rating.
--Successful management of the increased operational responsibility related to transitioning from a water purchaser to a supplier of the system's own water will be important.
SECURITY:
The bonds are secured by net system revenues.
CREDIT SUMMARY:
The city of Lomita is a small, largely built-out bedroom community for the greater Los Angeles and Orange county labor pools. With an overall population of approximately 21,000, the city has roughly 4,250 retail water system connections. The system is transitioning from a relatively simple, largely outsourced, water distribution system to an owner-operated water supply and distribution system which will require more active management. The bond-funded projects - including a reserve replacement project and well rehabilitation project - largely have been completed and will provide diversity in terms of water supplies and storage, reducing the city's reliance on increasingly costly water from the Metropolitan Water District of Southern California (revenue bonds rated 'AAA' by Fitch).
The water system's overall financial position is good. Debt service payments began in fiscal 2010 and coverage was 1.4 times. For fiscal 2011, financial performance is expected to produce similar results. Days cash on hand in fiscal 2010 was very strong at 762, though down from its level of over 1,000 days for the prior five years. Reserves have been utilized to some extent for capital purposes and it is expected that this will continue. However, liquidity levels are anticipated to remain sufficient.
The city significantly enhanced its water revenues by revising its water rate schedule and passing a five-year package of rate increases through fiscal 2011. The new structure includes two sets of tiered rates for residential and commercial properties that promote conservation, a change from the prior flat fee structure. As a result of the new water rate structure and the approved rate hikes in recent years, water revenues rose from $1.95 million in fiscal 2005 to $3.7 million in fiscal 2010. To ensure sufficient monies for ongoing operating and capital purposes, system management plans to begin another rate study in about six months. Legal provisions are standard and provide adequate bondholder protections.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
'Water and Sewer Revenue Bond Rating Guidelines', dated Aug. 6, 2008.
For information on Build America Bonds, visit www.fitchratings.com/BABs
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
Water and Sewer Revenue Bond Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=395918
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