AUSTIN, Texas - (Business Wire) In the course of routine surveillance, Fitch Ratings upgrades to 'AA-' from 'A+' its rating on San Elijo Joint Powers Authority, California's (SEJPA) $13.3 million in outstanding 2003 refunding revenue bonds (San Elijo wastewater treatment facilities). The Rating Outlook is Stable. The bonds are payable from loan installments made by the SEJPA's member agencies - the sanitation enterprise fund of the City of Solana Beach (Solana Beach) and the Cardiff Sanitation Division of the City of Encinitas (Encinitas). Each member's unconditional obligation to pay installment payments is secured by a first and prior lien on and pledge of net revenues of the member's respective wastewater enterprises. Based on the loan agreements, 53% of the debt is paid by Solana Beach and 47% is paid by Encinitas. There is no step-up provision between the members. Each member has agreed under their respective loan agreements to set rates and charges at no less than 1.1 times (x) annual debt service (ADS) on their portion of SEJPA's bonds, parity debt, and any amount required to replenish the debt service reserve on the SEJPA's bonds, if needed.
The upgrade to 'AA-' from 'A+' reflects the steady and improving financial performance of the SEJPA's underlying member agencies. Over the last several years both members have experienced increases in ADS coverage as a result of adopted rate increases. These rate increases have preserved each member's healthy liquidity positions and translated into ample cash flow cushion to meet ongoing capital needs.
The 'AA-' rating reflects the underlying credit quality of Solana Beach and Encinitas. Both members have strong financial positions and share favorable service area profiles. Solano Beach's debt levels are high, but given the lack of growth pressures, future capital needs appear manageable, including those associated with the SEJPA. Member ADS coverage levels historically have been adequate but have improved steadily in recent years.
Consistent with its role as a joint action agency, the SEJPA has limited financial cushion with only sufficient debt service coverage although liquidity is typically strong. The rating reflects the credit quality of the members and their financial performance. Solana Beach and Encinitas both have raised rates in recent years, enhancing the financial performance of their respective utilities. For fiscal 2008, Solana Beach produced ADS coverage of 3.0x on an all-in basis compared to 1.6x in fiscal 2003. Encinitas likewise experienced improved all-in ADS coverage during this timeframe, rising from 1.5x in fiscal 2003 to 4.0x in fiscal 2008. Liquidity results for each member consistently have been very high, and for fiscal 2008 both utilities maintained over 1,400 days cash and days working capital. Member wastewater charges are billed and collected by the county along with property taxes, minimizing the delinquency rates. Wastewater service rates are relatively reasonable, providing sufficient ongoing rate affordability.
Located in northwest San Diego County, the SEJPA's service area encompasses around 19 square miles. These primarily residential, beach communities are characterized by their desirable location, high wealth levels with high-end housing, and slow growth. Population growth is well below county and state averages as both communities are primarily built-out.
The SEJPA, initially organized in 1963 and formally established in 1987, provides residential and nonresidential wastewater treatment services to a population of around 32,000 residents. The treatment facility is owned and operated by the SEJPA, which acts as a wholesale provider of wastewater treatment to the members while the members maintain responsibility for their respective wastewater collection infrastructure. The treatment facility's capacity totals 5.25 million gallons per day (mgd), well in excess of the 3.0 mgd average daily flows. This excess capacity is projected to exceed demand at build-out, which is projected by 2030. No major capital needs are anticipated for the treatment facility and the capital improvement programs (CIP) for each member appear manageable. Limited, if any, additional debt is expected to be required to fund the SEJPA's and members' CIPs.
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Fitch Ratings, Austin
Doug Scott, 512-215-3725
Julie Seebach, 512-215-3740
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
