Ratings agency give Nacimiento Water Project bonds an ‘A+’ rating
–On Wednesday, Fitch Ratings affirmed its ‘A+’ rating for San Luis Obispo County Financing Authority bonds issued on behalf of the San Luis Obispo County Flood Control and Water Conservation District for the Nacimiento Water Project.
- $34.3 million Nacimiento Water Pipeline Project revenue refunding bonds series 2007B;
- $103.8 million Nacimiento Water Project revenue refunding bonds series 2015A;
- $23.3 million Nacimiento Water Project revenue refunding bonds series 2018A.
The rating outlook is stable, according to Fitch. Additionally, Fitch has assessed the district’s standalone credit profile ‘a+’.
The ‘A+’ rating and ‘a+’ credit profile are supported by the underlying purchasers’ credit quality and are based on a weakest-link analysis, the analysis said. The ‘a’ revenue defensibility assessment reflects the take-or-pay contracts with the four obligors whose gross water revenues secure the Nacimiento Water Project bonds as well as the district’s inability to fully reallocate costs in the event of default by any of the three largest obligors. The contracts do not provide for the full ability to reallocate costs, so the rating is capped by the credit quality of the weakest of the three largest obligors.
The project bonds are secured by take-or-pay water delivery entitlement contracts with four San Luis Obispo County water providers: the city of San Luis Obispo (SLO), the city of Paso Robles (Paso Robles), Atascadero Mutual Water Company (Atascadero), and the Templeton Community Services District (collectively, the participants). The three largest participants, SLO, Paso Robles, and Atascadero, account for over 95% of contract payments related to the project. Contract payments are senior obligations payable from the participants’ gross water revenues and are subject to a 25% step-up provision in the event of non-payment by any of the participants. The 25% step-up provision would not cover a default by any of the three largest participants.
Fitch reviewed the credit quality of SLO’s water fund, Paso Robles’ water fund, and Atascadero. Fitch rates the city of SLO’s water revenue bonds ‘AA’/Stable. The credit quality of Paso Robles’ water operations and Atascadero are assessed internally, and the rating is capped by the credit quality of Paso Robles’ water fund.
Coronavirus Considerations
The outbreak of coronavirus and related containment measures worldwide creates an uncertain global environment for the water and sewer sector. To date, the three largest participants have not experienced any significant, sustained demand declines as a result of the coronavirus or seen a material decline in revenue. Fitch’s ratings are forward-looking in nature. Fitch will monitor developments in the sector as a result of the virus outbreak as it relates to severity and duration and incorporate revised expectations for future performance and assessment of key risks as appropriate.
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