Moody's Investors Service said it has upgraded to Aa1 the rating of the Orange County Sanitation District, Calif.'s refunding certificates of participation, Series 2007A with $92.6 million outstanding; certificates of participation, Series 2007B with $273.4 million outstanding; and refunding certificates of participation, Series 2008B with $26.1 million outstanding as of June 30, 2013.
The certificates are secured by a senior lien on net system revenues, on parity with eight other outstanding certificates of participation (COPs) totaling $882.9 million which are not rated by Moody's but considered in the analysis. The district has $1.3 billion of total debt outstanding as of June 30, 2013.
The upgrade to Aa1 from Aa2 reflects improvements to the district since the last review as well as the continued stability of the district's credit profile.
Since the last review, the district has completed its capital improvement plan, which has resulted in the full implementation of secondary treatment at its two plants in December 2013.
When initially rated, the district had been operating under a waiver from the Clean Water Act Section 301(h), which was subject to renewal every five years, allowing the district to provide a lower treatment level (advanced primary vs. secondary) than required of almost all other treatment plants in the country.
Providing full secondary treatment eliminates the risk posed by the required renewals of the waiver. Also since the last review, the district has refunded all of its variable rate debt and swap instruments. While the district has issued a large amount of total debt to fulfill its capital improvement plan, all of the district's debt outstanding are fixed rate obligations with relatively stable debt service payments. These credit factors had held the district's rating at previously lower levels and the fundamental change in these credit factors is reflected in the upgrade.
Additionally, the upgrade reflects the district's large and stable service area that should remain strong in the long-term and its strong financial management which has consistently resulted in healthy financial performance. The rating also incorporates projections for strong debt service coverage going forward and the expectation that the district will issue very little future debt.
