LOS ANGELES — California's Westlands Water District was placed on rating watch negative by Fitch Ratings after it was fined by the Securities and Exchange Commission for misleading investors.
The action affects the underlying AA-minus rating on $193.6 million of debt issued by the Fresno-based district and $29.8 million of AA-minus-rated debt from the San Luis & Delta Mendota Water Authority.
Fitch acted Thursday, a day after the SEC charged Westlands, the state's largest agricultural water district, and two officials with misleading investors about its financial condition when it issued $77 million of bonds in 2012.
The negative watch is based on SEC findings that the district and two district officials violated federal securities laws in association with the district's 2012 bond issuance by misleading investors about the district's financial position, Fitch analysts said in the report.
Westlands Water District agreed to pay a $125,000 fine as part of a settlement that did not require admissions of guilt. Thomas Birmingham, its current general manager, and Louie David Ciapponi, its former assistant general manager, paid fines of $50,000, and $20,000, respectively.
District officials agreed to halt activities that led to the charges and to develop written financial disclosure policies and to train staff.
Westlands said in a statement that its administrators had cleared the accounting changes with the district's auditor and noted that the settlement did not say the violation was intentional.
In a meeting in November 2009, Westlands officials talked to the district's accountant about reclassifying cash reserves or retained earnings as revenue instead of raising rates.
Without the reclassifications, the SEC found that the district's debt service coverage ratio in 2010 would have been 63% for that fiscal year, not the 125% required by bond covenants.
Fitch said it expects to resolve the rating watch following an assessment of the implications of the SEC's order as it relates to the district's management and financial results.
