Fitch Rates Western Muni Water District Facilities Auth (CA) Water Revs 'AA-'; Outlook Stable

SAN FRANCISCO--(Business Wire)--
Fitch Ratings has assigned an 'AA-' rating to the Western Municipal Water
District Facilities Authority, California (the district) water revenue bonds,
series 2009B. The Rating Outlook is Stable. The bonds are expected to be issued
in an amount of approximately $55 million. The bonds are expected to price via
negotiated sale during the week of April 20, 2009.

The rating reflects the revenue diversity and stability provided by the
district's sizable wholesale business, timely rate recovery of purchased water
costs directly from the wholesale customers, recent rate actions for retail
water and wastewater service to reflect true service costs, and debt service
coverage that is projected to remain above 2.5 times (x) for bondholders, or
1.5x excluding connection fees.

Credit concerns center on the need for additional retail rate increases at a
time of intense economic pressure in the service territory, potential further
declines in property tax revenues given the region's severe deterioration in
property valuations, and significant water supply pressure in the region.

The district's service territory consists of a 527 square mile area located in
western Riverside County in southern California with a population of 853,000.
The district is primarily a wholesale provider of water (accounting for 53% of
revenues in fiscal 2008). It sells water to eight wholesale customers and passes
the wholesale cost of purchased water from the Metropolitan Water District of
Southern California (MWD) directly through to those customers. The cost includes
an administrative fee for the district's costs. The cost-based nature of the
wholesale water business line provides stability to the district's overall
financial performance.

The district also provides retail water and wastewater service to 23,405 and
7,764 customers, respectively. Retail water and wastewater revenues accounted
for 7% and 8%, respectively, of total revenues in fiscal 2008. The majority of
water for the retail system is purchased from the MWD (water revenue bonds rated
'AAﳗꁪ? Outlook' by Fitch), the regional water provider for southern California.
MWD faces uncertainty regarding its available water supply in 2010 given various
environmental and political challenges surrounding the State Water Project and
ongoing drought conditions in the state. MWD is considering the possibility of
implementing mandatory water rationing to its customers, including the district,
which could result in lower than projected water revenues.

In prior years, the retail system had not historically experienced rate
increases that kept pace with cost increases. Instead, growth in the district's
share of the county's 1% property tax collections were used to fund increased
costs. Tax receipts account for 18% of revenues in fiscal 2008. Two rate actions
in the past 18 months for retail water and wastewater customers are beginning to
reverse this trend and a third retail water rate increase of 21% will be
considered by the Board in May 2009. The 21% rate increase is prompted by the
announced expectation by MWD that it will raise its water rates 21% to its
members in January 2010. Additional annual retail rate increases are expected at
the district in order to gradually eliminate the district's historical reliance
on property taxes to fund operations and to absorb increasing water costs from
MWD. Curtailment of water supply from MWD could prompt the need for even greater
than anticipated rate increases to preserve the district's financial margins.
Some concern exists regarding the ability to implement multiple large rate
increases in the current economic environment.

Debt service coverage in fiscal 2008 was strong at 4.3x, including property tax
revenues. State loans for various projects are paid as an operating expense
prior to debt service on the series 2009B bonds and outstanding parity debt.
Projected debt service coverage is expected to fall but remain healthy at over
2.5x, including additional debt issuance of $25 million in fiscal 2011 and
sizable annual rate increases. The district's five-year capital plan is
estimated at $171 million. The majority of spending will fund upgrades to the
wastewater treatment facilities. Liquidity is healthy with unrestricted cash of
$75.3 million, or 334 days operating cash. Reserve levels are expected to remain
around this level or higher. Reserves also now include a designated rate
stabilization fund equal to $20 million, or one year's estimated property tax
receipts. The designated fund is intended to protect the district from
fluctuating property tax collections or state reallocation of the funds.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Kathy Masterson, 415-732-5622, San Francisco
Douglas Scott, 512-215-3725, Austin
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com

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