WWD investment will pay... notice the inference that Westlands can sell water to So Cal

Wednesday, Apr. 30, 2008

Fitch Rates Westlands Water District, California's $30.1MM 2008A COPs 'A'

SAN FRANCISCO — Fitch Ratings has assigned an 'A' rating to Westlands Water District, California's (WWD) $30 million adjustable-rate refunding revenue certificates of participation (COPs), series 2008A. Fitch has also assigned an 'A' rating to WWD's approximately $230 million outstanding parity certificates. The Rating Outlook is Stable.

The certificates are secured by a pledge of and first lien on net revenues of the district's water system (the system). The 2008A COPs, which priced on April 29, will refinance $30 million in outstanding adjustable-rate COPS, series 2005B.

The 'A' rating reflects WWD's role as provider of agricultural water services to a vast agricultural economy as well as the inherent value in the district's water entitlements through its role as the contractor with the federally owned Central Valley Project (CVP). The rating also reflects WWD's satisfactory financial operations, marked by annual surpluses and good liquidity position. Credit risks are centered high revenue concentration resulting from the small number of customers/land owners and risk to the availability of CVP water, its increasing costs and WWD's ability to acquire new water entitlements.

WWD covers 617,700 acres in Fresno and Kings County on the west side of the San Joaquin Valley. It is the largest irrigation district in the U.S. by acreage. WWD's CVP entitlement totals 1.15 million acre feet (AF), although actual deliveries of CVP water averaged 850,000 AF (74% of entitlement) from fiscal 2002-2007 and the district projects deliveries of about 65% going forward. A nine-member board elected by landowners governs WWD's policies and operations. The board maintains full independent rate-setting authority as well as the ability to place a lien on property if water bills are unpaid, resulting in very low delinquencies.

Offsetting the concentration risk somewhat is the value of the cash crops farmed in the district (about $1.3 billion in fiscal 2008), the absence of alternative/equivalent supplies or infrastructure to deliver water and the potential ability to sell and transfer water rights outside the district should agriculture cease to be economic. The demand for water in Southern California and the San Francisco Bay Area by users with connectivity to the CVP is very high.

WWD has multiple rates and charges designed to recoup its costs, including, among others, CVP contract rates, acreage charges, supplemental water charges, power surcharge charges as well as land based charges and assessments. WWD covenants to set rates and charges so that net revenues cover debt service at lease 1.25 times (x). In addition, the issuance of parity obligations requires historical and projected revenues to cover projected debt service 1.25x.

Historical water enterprise financial operations appear healthy with positive annual results, good liquidity levels with designated reserves, and adequate debt service coverage. Debt service coverage by net revenues ranged from 2.1x in fiscal 2004 to 1.4x in fiscal 2007 and financial projections indicate sound operations going forward, increasing debt service coverage from 1.3x in fiscal 2008 to 1.6x in fiscal 2010-2012.

WWD's capital needs appear manageable and are focused on acquiring additional water entitlements, possibly expanding the distribution system to a small area currently not served, and development of drainage facilities to address the saline subsurface water.

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 Ribble, 415-732-1756, San Francisco Gabriela Quiroga, 512-215-3731, Austin or Media Relations: Cindy Stoller, 212-908-0526, New York