Lakeport, CA Series 2018 Solar And Energy Efficiency Retrofit Project Revenue Bonds Assigned #A-# Rating

Stocks and Financial Services Press Releases Tuesday June 19, 2018 18:09
CENTENNIAL--19 Jun--S&P Global Ratings

CENTENNIAL (S&P Global Ratings) June 18, 2018--S&P Global Ratings assigned its 'A-' long-term rating to the Municipal Finance Agency of Lakeport (the "authority"), Calif.'s series 2018 revenue bonds (Solar and Energy Efficiency Retrofit Project), issued on behalf of the City of Lakeport.

The series 2018 revenue bonds are being issued to finance the acquisition and installation of certain new solar and energy efficiency equipment and improvements.

The bonds are secured by installment and lease payments made by the city to the authority under an installment purchase agreement and lease payment agreement. A pledge of the city's water and wastewater system net revenues secures the installment payments. In addition, base rental payments, appropriated annually by the city, secure the lease payments. There is no cross collateralization, so the rating on the bonds is based on the weakest of the three payment streams, which, in our opinion, is the water system.

"Because of the lack of cross collateralization, the rating on the bonds is based on the weakest of the three payment streams, which, in our opinion, is the water system," said S&P Global Ratings credit analyst Alexandra Rozgonyi.

The enterprise risk profile reflects our view of the water system's:
  • Service area in Lake County on the western shore of Clear Lake, about 45 miles northwest of Santa Rosa;
  • Standard market position, which reflects affordable service rates in the context of the service area's adequate income levels, although somewhat hindered by the county poverty rate;
  • Very low industry risk as a monopolistic service provider of an essential public utility; and
  • Good operational management assessment given the system's sufficient water supply to meet demand.
The financial risk profile reflects our view of the water system's:
  • Adequate all-in coverage metrics that we believe are more susceptible to revenue and expense fluctuations given the system's absence of economies of scale;
  • Adequate liquidity position, which we expect will stay adequate given management's flexible capital plan;
  • Moderately leveraged based on a pro forma debt-to-capitalization ratio of 77%; and
  • Standard financial management practices and policies.

The stable outlook reflects our expectation that financial metrics will stay stable during the outlook horizon and that management will complete a water system plan and an updated rate study. Furthermore, our stable outlook reflects our expectation that management will implement timely rate increases to maintain stable metrics.

We could raise the rating if the water system posts consistent strong financial metrics and if the service area economy diversifies and strengthens.
We could lower the rating if all-in coverage drops below 1.0x for consecutive years or if liquidity is materially spent down without an offsetting rise in operating revenues from rate increases.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.


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