NEW YORK - Moody's Investors Service said it has downgraded to A2 from A1 the rating on the Three Valleys Municipal Water District, Calif.'s 2003 refunding revenue certificates of participation (COPs).

The COPs are secured by installment payments payable to the Three Valleys Municipal Water District Financing Corporation. The installment payments are derived from the net revenues of the district.

The downgrade reflects the district's declining debt service coverage and increasingly narrow operating margin, as the district has not enacted rate increases sufficient to pass through the Metropolitan Water District of Southern California (MWD) rate increases to retail members.

The rating also incorporates the district's strong ratio of unrestricted cash relative to the total amount of remaining debt service, adequate financial flexibility, very short term to debt maturity and large and diverse service area located in eastern Los Angeles County.

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