COMMERCE >> Moody’s Investor Service has signaled that it may downgrade its bond rating for the embattled Central Basin Municipal Water District.
If this were to occur, interest rates for the planned refinancing of about $8 million could increase, thus raising district costs, said Kevin Hunt, the district’s general manager.
In a press release, Moody’s said it placed Central Basin on review for a possible downgrade of its current Aa3 rating as a result of what it calls “low debt service coverage level” and “changes in management.”
Hunt said he believes Central Basin will be able to avoid the downgrade because the district’s existing financial numbers and resumes of current staff haven’t yet been sent to Moody’s.
“If they do downgrade us, I’d be very disappointed,” he said. “I think we’ll do fine. We have good numbers.”
The review of Central Basin by Moody’s doesn’t come as a surprise. The company is reviewing finances of all water districts in California as a result of the drought, Hunt said.
Officials from Moody’s didn’t return a phone call and an email for comment.
Central Basin’s debt restructuring is expected to save the district about $1.5 million in fiscal years 2018-2022.
If the district doesn’t refinance, it may be forced to raise rates as much as 50 percent. The other option is to eliminate more than half of Central Basin positions, said Richard Aragon, former finance director in early 2014.
The refinancing was delayed to occur until early next year in order to wait until a state audit of Central Basin is completed, Hunt said. The latter isn’t due out until Dec. 3, he added.
“We talked to our financial advisors and they said you have this audit pending, it creates uncertainty,” he said. “It’s better to wait a year to get it done.”
The state audit was ordered after four state legislators requested it, saying Central Basin has lost credibility with the communities it serves.
For example, while water sales continue to decline, the district’s fees have more than quadrupled from $15 per acre foot in fiscal 1992-93 to its existing $70 per acre foot, they said.
In addition, the district has spent hundreds of thousands of dollars on legal fees — sometimes as much as $200,000 in a month, they said.
Hunt has said he expects the audit to show the district is doing a better job now.
