Jan 30 - Fitch Ratings affirms the following ratings of Yuba City, CA (the city):
--$22.2 million water revenue certificates of participation (COPs), series 2005.
The Rating Outlook is Stable.
The COPs are secured by a first lien on the net revenues of the water system.
ADEQUATE FINANCIAL PERFORMANCE: Financial performance is adequate, with coverage
at median levels and inconsistent liquidity levels which are expected to
HIGH DEBT: Debt ratios increased with a recent state loan, and amortization is
slow. Capital plans appear manageable.
PLANNED RATE INCREASES: System user charges are low, and a series of rate
increases recently approved by the city council for the next five years is not
expected to materially affect affordability.
INCREASED TREATMENT CAPACITY: Upon completion of a fish screens project
currently underway, treatment capacity will be increased by 20%. Water supply
remains sufficient through build out.
STABLE, CONCENTRATED SERVICE AREA: The system serves a relatively stable
customer base that is somewhat concentrated, with the largest customer
representing 8% of operating revenues.
Yuba City, located 40 miles north of Sacramento in California's central valley,
is the seat of Sutter County. The city, with a population of about 65,000, is a
largely agricultural economy with the largest employers consisting of fruit
processors, government, medical services, and retail outlets.
ADEQUATE FINANCIAL PERFORMANCE
Debt service coverage is adequate at 1.5x in fiscal 2012 and 1.6x in fiscal 2011
(after transfers). The system makes annual transfers of about $1.7 million to
the general fund for cost of service including billing and collections. The
city's forecast shows coverage remaining at least at these levels through fiscal
2016 given recently implemented rate increases. Fitch believes the forecast is
reasonable given the size of planned rate hikes and projection of operating
Liquidity has been inconsistent due to timing of reimbursements from loan
agreements with the state. In addition, the city had spent down reserves to
construct improvements related to conversion from groundwater to surface water.
Cash at year end fiscal 2010 was zero but increased to $1.3 million at year-end
fiscal 2011. Cash increased sharply at year-end fiscal 2012 to $14.7 million
(equal to over 1,000 days cash), primarily the result of the receipt of loan
agreement reimbursements. Fitch expects cash levels will decline somewhat from
this level before stabilizing due to lack of additional major capital spending
PLANNED RATE INCREASES
Fitch notes positively that the city approved a five-year rate package with
increases for fiscals 2012 through 2016. The base rate increase ranges from 2.8%
to 5.9% per year and the volumetric increase ranges from 2.8% to 11.5%. The
package was in response to a 2011 water rate study which found that current
water rates were insufficient to fund ongoing expenses and the additional debt
service for a $15 million state loan for the surface water facility upgrade and
expansion, as well as additional capital needs over the next five years.
The system obtains its surface water supply from the Feather River under four
water supply contracts. Its primary permits from the State Water Resources
Control Board allow it to obtain up to 15,500 acre feet (AF) per year. The
city's base summer water supply is provided through a contract with the North
Yuba Water District (NYWD), which provides up to 4,500 AF of water to the city.
Additionally, the city has a water supply contract for State Water Project water
with the California Department of Water Resources (DWR) that entitles the city
to divert up to 9,600 AF per year. However, the average allocation is about 60%
of the allotment. Both the NYWD and DWR contracts expire in 2035. The city also
has access to 2.9 million gallons per day (mgd) from a backup groundwater well.
Water supply is projected to be adequate for full buildout.
The city's water treatment plant has a design capacity of 36 mgd and storage
capacity of 20.6 million gallons. The current permitted capacity of 30 mgd will
be increased to 36 mgd once the intake structure and fish screens are completed
in February 2014. The current maximum demand is nearly 27 mgd.
The city must install fish screens on its Feather River Intake Structure in
order to mitigate the adverse impact on the spring-run and fall-run Chinook
salmon and Steelhead trout. The project is partially funded through a $900K
federal grant and $500K state grant, with the balance of approximately $3.6
million funded through paygo.
ELEVATED DEBT LEVELS; MANAGEABLE NEEDS
Debt ratios increased to high levels in 2012 with the $15 million state loan for
the surface water facility. At $2,555 per capita, debt is much higher than the
prior year level of $1,773 and higher than Fitch medians at the rating level.
The system's debt is expected to decrease gradually over the next five years, as
no additional borrowing is planned. Amortization of debt is slow with only 60%
of principal repaid within 20 years. The five-year capital improvement plan
totaling $20 million is primarily for repair and replacement projects and is
expected to be funded with paygo.
STABLE, SOMEWHAT CONCENTRATED CUSTOMER BASE
Yuba City provides water service to approximately 18,077 connections, of which
about 80% are residential. The largest customer of the system is Sunsweet
Growers, Inc., representing a somewhat concentrated 8% of operating revenues.
The other nine largest customers represent another 8%. Population growth has
averaged about 1.8% over the last five years.