LOS ANGELES - The California Department of Water Resources sold $161.5 million of Central Valley Project Water System revenue bonds on Tuesday in a competitive offering.

Proceeds will fund an extension to the water system serving a portion of San Bernardino County and to refund all of the department's outstanding water revenue commercial paper notes, Series 1.

Citi won the bid with a true interest cost of 3.2308%.

Yields ranged from 0.15% with a 5% coupon in 2015 to 3.82% with a 4% coupon in 2035.

The bonds were rated Aa1 by Moody's Investors Service, and AAA by Standard & Poor's. Both assigned stable outlooks.

"The long-term rating reflects our view of the credit strength of DWR's 29 public agency water contractors and the long-term essentiality of the state water project," said Standard & Poor's credit analyst Robert Hannay. "Further supporting the rating is our view of DWR's strong cash position, which we consider important for providing liquidity," Mr. Hannay added.

The DWR is a department within the California Natural Resources Agency responsible for the planning, construction, and operation of the State Water Project, a system of dams, water storage facilities, aqueducts, pumping stations, and electric generation facilities that were constructed to develop a water supply and conveyance system in the state.

Moody's said its Aa1 rating primarily reflects the strong take-or-pay nature of the water supply contracts from which debt service payments are derived, and the critical, long-run importance of the DWR water supply to its 29 contractors, as well as the department's ability to withstand a large amount of delinquencies by contractors with the help of its 1.25 times rate covenant and step-up provisions.

"These considerations mitigate the risks associated with the current drought and the generally volatile and unpredictable annual precipitation levels," analysts said in the credit report. "If the drought continues in duration and severity, the state's water supply will become an increasingly important factor in our analysis, notwithstanding the take-or-pay nature of the supply contracts."

The water revenue debt is secured separately from revenues securing the DWR's power supply bonds and revenues securing bonds for the Devil Canyon-Castaic water facilities.

The department currently has approximately $2.2 billion in parity water system revenue bonds outstanding.

Orrick, Herrington & Sutcliffe LLP was bond counsel on the deal, Montague DeRose was financial advisor.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.