Moody's Investors Service downgraded to A2 from Aa2 the rating on $145.9 million in certificates of participation issued by Antelope Valley-East Kern Water Agency, Calif.

The downgrade affected Series 2007A-1, Series 2008A-1, and Series 2008A-2 COPs.

These certificates are secured by installment payments to the California Special District Association Finance Corporation from net revenues of the agency's operations, according to the report.

The downgrade of these certificates reflects the precipitous decline in the agency's debt service coverage ratios, which have declined from 3.07x coverage in fiscal 2008 to 0.95x in fiscal 2012, which is an exceptionally weak credit factor for an enterprise system, analyst said.

The decline "is largely due to the decrease of revenues from investment income and capacity charges without an offsetting increase in other revenues or a decrease in expenditures," analysts said. The enterprise experienced a $4 million shortfall in budgeted property tax revenues in 2012. Agency management expects coverage ratios to be above 1.00x in fiscal 2013 and is looking at options to raise the coverage ratio, but Moody's analysts said they anticipate continued narrow coverage in the near-term.

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