Moody's Investors Service has downgraded to A2 from A1 and assigned a negative outlook to the city of Lompoc, Calif., Series 1998, Series 2005 and Series 2007 revenue bonds (water and sewer).
The bonds are special obligations of the Lompoc Public Financing Authority (authority) payable from installment payments made by the city of Lompoc to the authority.
The installment payments are secured by a combined pledge of net revenues from the city's water and wastewater enterprises (system).
The rating action reflects the system's failure to set rates at a level sufficient to cover both senior and subordinate debt service requirements.
Total debt service coverage is estimated to be below sum-sufficient in fiscal 2012 (unaudited) and is projected to be below sum-sufficient in fiscal 2013, assuming no significant consumption increases or rate increases.
Each of these instances constitutes a failure to meet senior and subordinate rate covenants. The system's narrow operations are likely to require a series of rate increases in ensuing fiscal years to generate higher debt service coverage ratios. The rating action also incorporates the system's adequate available reserves to support near-term debt service requirements; small yet relatively stable customer base; and recent significant capital and infrastructure improvements that have satisfied investment needs for the next five fiscal years.