KBRA Affirms Ratings for City of San Diego, CA Senior Water Revenue Bonds and Subordinate Water Revenue WIFIA Loans at AA/AA-; Outlook Stable
4 Jun 2025 | New York
KBRA affirms the long-term rating on the City of San Diego, CA (the "City") Senior Water Revenue Bonds at AA. Concurrently, the long-term rating on the Subordinate Water Revenue WIFIA Loans (the "WIFIA Loans") is affirmed at AA-. Both liens have a Stable Outlook.
The Senior Water Revenue Bonds (the Bonds) are issued by the Public Facilities Financing Authority of the City of San Diego and secured by installment payments made by the City of San Diego. The City’s obligation to make the installment payments on the Bonds is secured by a senior net revenue pledge of the City’s water system revenues. The WIFIA Loans are secured by a subordinated net revenue pledge of the water system revenues.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- Diversified, largely residential customer base in a broad service area with above average socioeconomic indicators.
- A history of implementing timely water rate increases to support financial performance.
- Solid financial performance, characterized by strong debt service coverage and moderate leverage. Liquidity is adequate, albeit recently maintained at moderately lower levels to mitigate rate impacts through the capex cycle.
Credit Challenges
- Significant capital program to manage, with considerable debt requirements pressuring leverage and an ongoing need for water rate increases to fund a portion of the capex and maintain financial performance.
- Proposition 218 litigation adds uncertainty with respect to the implementation of timely rate increases.
- Rapidly rising cost of largely purchased water supply.
Rating Sensitivities
For Upgrade
- Implementation of the comprehensive capital program on-time and under budget, reducing projected debt and utility rate requirements.
For Downgrade
- Significant delays and cost escalations relating to the large capital program, which pressure leverage, debt service coverage and customer rate affordability.
- Inability to effectuate timely water rate increases as needed.
- Inability to moderate growth in account receivables which results in a material weakening of liquidity.
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