LOS ANGELES – Two Santa Paula, Calif., credits were cut to A-plus from AA-minus on Friday by Standard & Poor’s Ratings Services, which cited lower-than-forecast revenue from water utility sales. The outlook on the debt is stable, S&P said.
The ratings service lowered its long-term and underlying spur ratings to A-plus from AA-minus on Santa Paula Public Finance Authority and Santa Paula Utility Authority water enterprise revenue bonds.
“The water enterprise’s financial performance in fiscal year 2012 was adequate following a significant increase in annual debt service requirements as the water enterprise began paying debt service on the 2010 bonds,” S&P said in a report. “We calculate [debt service coverage] of 1.16 times in fiscal year 2012, which we consider adequate following strong DSC of 1.57 times and 1.8 times in fiscal years 2010 and 2011, respectively.”
During this period, operating revenues jumped about 24%, primarily due to two 12% rate increases, while operating expenses rose 8.5%, driven in part by rising groundwater replenishment charges, the analysts said.
Santa Paula is located in Ventura County, 65 miles northwest of downtown Los Angeles.
The service area encompasses the 4.5-square-mile city, plus roughly 10 miles of unincorporated areas in the county.
While income levels in the area are adequate, unemployment rates have ranged from 13.5% to 18.3% over the past 36 months and hovered around 13.5% in February, according to S&P analysts.
“Water rates are high, in our opinion, and constrain management’s revenue-raising flexibility,” according to S&P analysts.
Planned capital improvements during the next few fiscal years are anticipated to be funded from existing bond proceeds, the report said.
Management plans to spend the remaining 2010 bond project funds on various water storage, water supply, and water transmission system improvements.
Santa Paula had $138.8 million in total outstanding debt at the end of fiscal 2012, according to financial documents posted on the Municipal Rulemaking Board’s EMMA website.