Fitch Rates Western Riverside Water & Wastewater Fin Auth Revs 'AA-'; Upgrades Outstanding to 'AA-'

SAN FRANCISCO--(Business Wire)--
Fitch Ratings assigns an 'AA-' to approximately $31.1 million Western Riverside
Water and Wastewater Financing Authority (the Authority) revenue bonds, series
2009 (Eastern Municipal Water District Improvement District's general obligation
bond financing). The bonds are scheduled to sell via negotiation on July 29,
2009. In addition, Fitch upgrades the $16.3 million of the Authority's
outstanding revenue bonds, series 2005A (Eastern Municipal Water District
Improvement District's general obligation bond financing) to 'AA-' from 'A+' and
affirms the 'AA' rating on Eastern Municipal Water District's (the district)
water and sewer revenue certificates of participation (COPs). The Rating Outlook
is Stable.

Proceeds from the 2009 revenue bonds will be used to purchase general obligation
(GO) bonds issued by 14 individual improvement districts within the district.
The 2009 revenue bonds are secured by the individual GO improvement district
bonds which are in turn payable and secured by unlimited ad valorem property
taxes levied within each respective improvement district relative to their GO
debt service. In addition, the district has covenanted to pay GO bond debt
service should the ad valorem taxes collected be insufficient. The covenant to
pay is from any legally available district funds, including reserves and net
revenues, on a subordinate basis to the payment of any debt service on district
obligations.

The 'AA-' rating reflects primarily the covenant by the district to pay GO bond
debt service in the event of a shortfall, the limited nature of the improvement
district's GO debt relative to the district's overall debt portfolio, and the
district's strong financial profile which insures timely payment of debt service
on the GO bonds, if necessary. The par amount of the outstanding 2005A bonds and
the 2009 bonds constitutes 5.9% of the district's total outstanding debt,
including about $42 million in state revolving fund (SRF) loans not rated by
Fitch, which are subordinate in payment to the district's COPs and senior to the
covenant to pay GO bond debt service. The upgrade of the 2005A bonds to 'AA-' is
based upon continued strong financial performance of the district and the
expectation that future GO issuances will remain limited relative to the
district's prior lien debt obligations.

The district's 'AA' rating reflects its strong financial profile, as evidenced
by high annual debt service coverage margins and good overall liquidity. While
the economic growth has slowed dramatically in this region, this has reduced the
district's exposure to connection fee revenue to more moderate levels. Key
rating drivers are the maintenance of good coverage levels and strong liquidity
to offset the risk of lower than expected connection fees as well as continued
strong management of a growth-focused capital improvement program (CIP).

The district provides water and wastewater service to roughly 36% of Riverside
County's (the county) 2 million residents through various retail and wholesale
connections. The boundaries of the improvement districts are wholly incorporated
within the district and represent a portion of the district's overall service
area - estimated at less than 100,000 persons. All operations and management
functions are administered at the district level and the improvement districts
have no separate finances apart from the district's financial statements. The
bonds are being issued for various capital projects within the benefitting
improvement districts, which in turn are part of the district's overall CIP.

Despite the falling level of connection fee revenue from $99 million in fiscal
2006 to an estimated $19 million in fiscal 2009, the district still posted very
favorable debt service coverage for the year on an all in basis (including COPs,
SRF loans and GO bonds), estimated at 2.2 times (x), or 1.7x without connection
fees. While coverage may face some pressure over the next few years as the
district issues additional debt for capital purposes, margins are expected to
remain favorable. For fiscal 2010, all-in debt service coverage is budgeted at
1.7x. Liquidity remains an important strength for the district and is supported
by several reserves with stated target levels. Liquidity has ranged from 308 to
495 days of operating expenses since fiscal 2003. For fiscal 2008, the district
maintained $155 million in reserves, providing ample liquidity to support any
portion of the approximately $4.5 million in annual GO bond debt service.

After experiencing rapid economic growth in recent years, the county is facing a
severe economic decline. Initially, the job losses were concentrated in
construction but now include most sectors. Assessed valuation countywide is
projected to decline about 10% in fiscal 2010. Evidencing the downturn, the
county's unemployment rate rose to 12.9% in April 2009 compared to 6.9% the
prior year. However, despite deteriorating economic conditions, the district
reports that overall service delinquencies remain relatively low.

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
Karen A. Ribble, +1-415-732-5611 (San Francisco)
Doug Scott, +1-512-215-3725 (Austin)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com

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