The Elsinore Valley Municipal Water Authority has given up on the variable-rate market for the time being.
The authority scrapped plans to refund $64.7 million of auction-rate securities with variable-rate demand obligations backed by a Dexia Credit Local letter of credit after Standard & Poor’s and Fitch Ratings cut their outlooks on Dexia SA’s credit to negative last month.
The bank, which owns the triple-A rated bond insurer Financial Security Assurance Inc., has long-term ratings of AA-plus from Fitch and AA from Standard & Poor’s, but its outlook was cut to negative on concern over its exposure to residential mortgage backed securities backed by home equity loans.
Elsinore Valley didn’t want to take the risk of repairing impaired auction-rate securities with variable-rate demand obligations that could end up impaired if Dexia’s credit continued to deteriorate, said spokesman Greg Morrison.
The water authority instead chose to issue fixed-rate certificates of participation with insurance from Berkshire Hathaway Assurance Corp. The deal was underwritten by Stone & Youngberg.
Morrison said that would give the district needed “certainty” about its debt service costs.