LOS ANGELES — Moody's Investors Service cited a slower than expected return to positive liquidity in downgrading of Glendale, Calif.'s water revenue bonds to A1 from Aa3, affecting $86 million in debt.
The bonds are secured by the net revenues of the city's water system.
The rating also takes into account the substantial size and strong economic diversity of the service area, as well as the residents' average socioeconomic profile, according to Moody's Nov. 20 report.
"While the water system's supply has been adversely impacted by the current drought, the system's primary supply sources remain strong," according to Moody's.
Glendale, the third largest city in Los Angeles County with a population of 196,000, borders Pasadena on the county's east side. The city serves as a major production center for the U.S. entertainment industry and animation industry. Several large companies also have offices in the community. The city had a median household income of $54,000 in 2010, according to the U.S. Census.
Analysts said the challenges include its poor liquidity position, the drought, heavy dependence on a single water source and inconsistent operating performance.
An increase in liquidity, sustained operations and maintenance of strong debt coverage ratios combined with expansion of the system's customer base could put upward pressure on the rating.
The rating could drop further, raters said, if the system experiences declining debt service coverage, further declines in liquidity and increased leveraging of the system. If the duration and severity of the drought continues, analysts said, it could also impact the rating.
Fitch Ratings, revised its outlook on its A-plus rating for Glendale's water revenue bonds to stable from negative Nov. 18.