Fitch Rates Santa Clara Valley Water District COPs 'AAA', Stable Outlook; Affirms Outstanding
Fitch Ratings has assigned the following rating to the Santa Clara Valley Water District, California's (the district) certificates of participation (COPs or certificates):
--$54 million refunding and improvement COPs, series 2012A, 'AAA'.
Proceeds will be used to refinance the district's outstanding 2003A COPs and finance certain flood control improvements. The COPs are expected to sell competitively on Nov. 13, 2012.
In addition, Fitch affirms the following ratings:
--$133.5 million (pre-refunding) in outstanding refunding and improvement COPs, series 2003A, 2004A and 2007A at 'AAA'.
The Rating Outlook is Stable.
COPs are secured by parity payments made in connection with the 1994 Installment Agreement (for the series 2003A, 2004A and 2012A COPs) and 1995 Installment Agreement (2007A COPs). The installment payments are secured by a first lien on gross revenues of the district's flood control system (the system), including voter-approved per-parcel benefit assessments.
KEY RATING DRIVERS
ASSESSMENTS PROVIDE STRONG SECURITY: The benefit assessments are levied on a very large, wealthy, and diverse tax base.
GUARANTEED COLLECTIONS OFFSETS LIMIT: The strength of the tax base, the Santa Clara County's (the county) guarantee of 100% of the assessments levied, and the fixed nature of the assessment offsets the 1.25 times (x) maximum annual debt service (MADS) limit to the benefit assessment.
ESSENTIAL SERVICE: The system provides an essential service.
STRONG HISTORICAL COVERAGE: Historical debt service coverage (DSC) of pledged revenues has been very strong, well over the 1.25x limit on benefit assessments.
LARGE RETIREE LIABILITIES: The district's retirement (pension and health care) liabilities are large, but the district has begun to pre-fund its other post employment benefit (OPEB) liability.
STRONG STRUCTURAL CHARACTERISTICS
The district is a multi-purpose special district authorized to provide flood protection services and supply water to county residents. The COPs are secured by gross revenues of the flood control services. In 1986 and 1990, voters authorized the district to levy benefit assessments based on the benefit received from flood control services while simultaneously limiting the assessment to 1.25x MADS on certificates outstanding prior to June 30, 1995.
The district covenants to annually reset the benefit assessments to provide debt service coverage of 1.25x MADS. The assessment is levied on property on parity with all other property taxes and collection is guaranteed by the county, which is a Teeter county. The property tax base is diverse, with the top 10 largest benefit assessment payers accounting for just 3% of the total.
FAVORABLE FINANCIAL PERFORMANCE
Financial results within flood control operations (which are included in the district's general government activities) are strong, characterized by high fund-balance levels. Though certificates are first secured by assessment levies, they are ultimately secured by a gross revenue pledge on virtually all flood control system revenues, which includes the district's portion of the county 1% property levy allocated to flood protection. As a result, actual debt service coverage exceeds the 1.25x assessment levy. Since fiscal 2007, debt service coverage has been over 3.5x.
BROAD AND EXPANDING ASSESSMENT BASE
A seven-member board oversees district operations. The district encompasses the entire county, which totals 1,330 square miles, 1.8 million residents, and more than 400,000 parcels. The county's assessed valuation (AV) increased by 6% on average annually from fiscal 2005-2011 despite a 2.4% decline in fiscal 2011, reflecting the impact of the housing correction. AV has since recovered with a 0.9% gain in fiscal 2012 and a 3.25% increase in fiscal 2013.
SOUND ECONOMIC FUNDAMENTALS
The county economy is strong and diverse. Wealth levels are well above average (per capita income is 136% of the state level). The economy has above average exposure to the cyclical high technology sector, but also benefits from a significant amount of venture capital invested in local companies. Large employers include Cisco, Lockheed, Apple, Intuit, ABM, HP, Stanford Hospitals and Clinics, Kaiser, Intel, and Applied Materials.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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