KBRA Affirms AA- Rating for Soquel Creek Water District, CA Pure Water Soquel Project WIFIA Loan; Revised Outlook to Positive
5 Aug 2025 | New York
KBRA affirms the long-term rating of AA- for the Soquel Creek Water District (the "District") Pure Water Soquel Project (PWS) WIFIA Loan. The rating Outlook is revised to Positive from Stable.
The long-term rating and revised Outlook for the PWS Project - WIFIA Loan reflects the District’s completion of the main component of its large capital program, the PWS advanced water purification facility in 2025, and maintenance of continued strong financial performance through the large capex cycle, characterized by the manageable debt burden, solid debt service coverage, and sound reserves, all supported by timely and adequate water rate adjustments. Capital expenditures are projected to decline over the five-year horizon and are expected to be funded largely from internal cash and existing grant funds, with no new debt requirements.
Key Credit Considerations
The rating was affirmed because of the following key considerations:
Credit Positives
- PWS project is substantially complete and remains close to budget, supported by state and federal grants and low-cost loans to contain project costs. No additional debt is contemplated to fund the project.
- District maintains strong financial performance, with manageable leverage, sound debt service coverage, multiple reserves and paygo funding of capital maintenance.
- Governing Board has demonstrated a willingness to enact rate increases as needed, pursuant to periodic rate studies which support strong financial performance.
Credit Challenges
- Failure to timely complete the remaining PWS related projects, or incurrence of material cost overruns which financially burden the District.
- Managing the low-to-declining water usage levels resulting from conservation and drought management measures in the State, which can pressure rates to sustain adequate revenues.
Rating Sensitivities
For Upgrade
- PWS full project completion with limited delays and added costs, and stable operating performance once in service by 2026.
- Strong trend in water sales and customer growth above expectations, strengthening financial metrics and/or offsetting projected rate increases.
For Downgrade
- Material project cost overruns which present a significant financial burden.
- Rate affordability concerns and/or Proposition 218 challenges that limit rate setting flexibility.
- Period of sustained below budget water usage without offsetting rate increases or expense reduction.
To access ratings and relevant documents, click here.