KBRA Affirms AA- Rating for Soquel Creek Water District, CA Pure Water Soquel Project WIFIA Loan; Stable Outlook
15 Aug 2024 | New York
KBRA affirms the long-term rating of AA- with a Stable Outlook for the Soquel Creek Water District Pure Water Soquel Project (PWS) WIFIA Loan.
The long-term rating for the WIFIA loan reflects the fundamental credit strengths of Soquel Creek Water District's (District) favorable service area socioeconomic characteristics, history of stable financial performance, and demonstrated willingness to raise water rates as needed. These strengths are offset by the completion risk and cost of a large capital improvement program, and an ongoing period of low water usage due to strong conservation measures.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- Favorable socioeconomic profile of the primarily residential service area.
- PWS project construction remains close to budget, supported by state and federal grants and low-cost loans which help defray significant project costs.
- District has enacted rate increases of 9% annually through 2023, and recently adopted another 4-year rate plan to support strong financial performance.
Credit Challenges
- Pure Water Project is a substantial capital undertaking for the District. While the PWS project has experienced manageable construction delays to date, further material cost overruns could financially burden the District.
- Water usage has been declining through 2023 given stringent drought management measures in the State, which pressures water rates to sustain adequate revenues.
Rating Sensitivities
For Upgrade
- PWS project completion with limited further delays and added costs, and stable operating performance once in service.
For Downgrade
- Material project cost overruns which present a significant financial burden and/or rate affordability concerns limiting rate flexibility.
- A period of sustained water consumption significantly below budget without offsetting rate increases or expense reduction.
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