LOS ANGELES - The California Department of Water Resources is selling $165.3 million of Central Valley Project Water System revenue bonds 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.

The bonds received a Aa1 rating from Moody's Investors Service, and a AAA rating from Standard & Poor's. Both assign 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," Hannay added.

The DWR is a department within the California Natural Resources Agency of the state responsible for the planning, construction, and operation of the State Water Project, which is 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, which is in the midst of a historic drought.

"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," Moody's wrote.

The new water revenue debt will be structured as term and serial bonds, and will be 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 is serving as bond counsel on the deal, Montague DeRose is financial advisor.

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