Moody's Investors Service said it has downgraded the city of Ukiah, Calif.'s sewer enterprise revenue bonds to Baa2, affecting $68.5 million in outstanding debt.
The bonds are secured by net revenues of the sewer system and a cash-funded debt service reserve fundsized at maximum annual debt service (MADS).
Concurrently, Moody's removed the rating from review-direction uncertain.
Moody's placement of the rating under review with direction uncertain on June 27, 2014, was prompted by a lack of sufficient 2013 audited financial information, which we have since received.
The downgrade of the rating to Baa2 reflects the continued weak debt service coverage by net revenues which has led to repeated reliance on rate stabilization fund transfers to meet rate covenant and the expectation for near sum-sufficient debt service coverage by net revenues in the near-term.
The rating also reflects potential risks regarding the uncertainty of the outcome of litigation and payment disputes between the city and its largest payer and the potential impact to the city's financial position.
The rating favorably incorporates the strong available cash levels, the stability of the customer base and the expectation that the system will soon raise rates.
