OREANDA-NEWS. Fitch Ratings has affirmed the 'AA' rating on the following obligations of Mojave Water Agency Public Facilities Corporation, California (the corporation) issued on behalf of the Mojave Water Agency (the agency):

--$35.6 million outstanding certificates of participation (COPs) series 2009A.

The Rating Outlook is Stable.

SECURITY

The series 2009 COPs are payable from installment payments from the agency to the corporation. The 2009 installment payments are secured by a gross revenue pledge and first lien on water sales revenues, the agency's portion of the San Bernardino County's (the county) 1% ad valorem property tax (including the unitary tax), and interest earnings of the agency's water system (the system).

KEY RATING DRIVERS

WHOLESALE SUPPLIER: Mojave is the supplemental wholesale water supplier to approximately a quarter of the population of San Bernardino County. Untreated water sales are made to wholesale customers from Mojave's State Water Project (SWP) allocation, depending on availability.

REVENUE DIVERSITY AND STABILITY: Mojave's revenue diversity and stability is unique for a water agency and provides a high degree of revenue stability with 78% of revenues not tied directly to water sales. This enabled the agency to absorb a 50% decline in water sales between 2011 and 2014 resulting from lower availability from the SWP.

STRONG COVERAGE AND LIQUIDITY: Debt service coverage (DSC) levels have remained over 3.0x in the past five years from all available revenues. DSC remained strong in recent years despite lower water sales and tax receipt declines that occurred during California's recession.

LOW DEBT; MANAGEABLE CAPITAL: The agency's capital plan for the next five years, not including potential additional water purchases, is very manageable and requires no additional debt. Debt levels are expected to remain low.

LIMITED SERVICE AREA: The somewhat limited economic base exhibits above average unemployment and below average incomes. It continues its recovery from the housing downturn with two years of AV growth through fiscal 2015. The reliance on tax receipts creates a greater reliance of the rating on the local economy.

RATING SENSITIVITIES

TAX BASE EXPOSURE: The agency is exposed to volatility in assessed value given the large portion of revenues received from property tax receipts. However, Fitch expects the agency to continue to achieve sound financial results given the stability and diversity of revenues.

CREDIT PROFILE

The Mojave Water Agency is a groundwater management and wholesale water agency encompassing 4,900 square miles of the High Desert in San Bernardino County (COPs rated 'AA-'; Stable Outlook by Fitch) and serving 464,058 residents. The agency serves as watermaster under a 1996 adjudication to ensure the health of the groundwater basin. The agency's water supply consists primarily of imported water from SWP purchases and groundwater storage. The SWP exhibits a high degree of availability fluctuation, depending on state hydrological conditions. Allocations of 5% in 2014 and 20% in 2015 reflect California's severe ongoing drought.

HIGH DEGREE OF REVENUE STABILITY AND DIVERSITY

The agency receives significant ad valorem tax revenues (78% of gross revenues in fiscal 2014 net of capital contributions) that do not fluctuate with water sales. Tax revenue fluctuations reflect local economic cycles, as occurred during the California recession and housing crisis. In addition to the portion of the county's property tax pledged to the 2009 COPs, the agency levies its own ad valorem property tax sufficient to meet all operating expenses, as well as a tax to cover 2014 revenue refunding bonds, 2006 GO debt service, and SWP purchases.

The agency also charges water rates to its wholesalers, which are reviewed annually by the board. The rate, currently set at $395 per acre-foot, has increased along with the rising cost of SWP water, and is set to increase 8.5% in fiscal 2016. A portion of the rate is the reliability assessment charge (approximately 44% of the water charges), which is used to cover the 2009 COP debt service. Rates remain affordable compared to downstream SWP contractors.

STRONG COVERAGE DESPITE REDUCED SALES

Over the past five years, debt service coverage has remained strong despite pressures related to reduced property tax receipts, lower water sales as a result of conservation and SWP availability, a lack of residential and commercial construction, and rise in home foreclosures. Debt service payments increased nearly 40% in fiscal 2010 with issuance of the series 2009 COPs. As such, DSC (including GO debt, COPs, and state loans) net of large grants declined only modestly from 2.6x in fiscal 2010 to 2.3x - 2.4x in fiscals 2011 - 2013.

DSC net of grants equaled 4.0x in 2014, or 2.1x net of $16.4 million in proceeds from a one-time sale of excess water. The sale was part of a Department of Water Resources pilot program that facilitates the sale and purchase of water among SWP contractors at prices determined by water availability.

Because the SWP water allocation for 2013 was only 35%, the agency benefited from selling its excess water at a high price to Kern County Water Agency and Santa Clara Water, among others. The Agency prudently has not built any ongoing revenues from this program into its forecast as it is a pilot program and any revenues received from this source would likely vary enormously from year to year.

Management forecasts DSC net of grants at no less than 2.8x the next three years assuming no income from potential SWP water sales contracts, continued low water sales. The agency bills for water pumped out of the basin each June for the prior water year, and thus does not expect to be affected by the recent state mandated conservation actions until June 2016. In fiscal 2016, it has budgeted a 15% overall decline in revenues from water sales and the reliability assessment; however, management expects the shortfall to be covered by increase in property tax receipts. In addition, a rate increase of 8.5% was implemented February 2015 with another 8.5% approved for February 2016. Mojave used a portion of its sizable cash reserves in fiscal 2013 to purchase additional water supply and fund projects but cash remained strong at $23 million, or 490 days operating cash. Cash reserves as of April 30, 2015 stood at $62.5 million, or about 1,700 days cash on hand. Management expects the balance to continue to rise going forward as the agency builds up cash levels to fund future projects.

LOW DEBT LEVELS

Overall debt levels per capita are low at about $159 and expected to decline due to the lack of additional borrowing plans. In addition to the potential purchase of water supply, the current five-year CIP (fiscal 2015 - 2019) totals about $18.7 million. Further, current supplies, assuming 60% long-term availability of the SWP, are projected to be sufficient to meet customer demands through 2044. The agency maintains comprehensive long-term planning efforts and its water storage is designed to withstand a three year outage from the SWP.

LIMITED SERVICE AREA

The San Bernardino-Riverside MSA was particularly hard-hit during the recession after being a high growth area previously. County unemployment rates had historically been higher than the state and national averages. However, they are down to 6.8% as of March 2015 from 9.4% year over year due to employment growth of 3.2%. Income levels are modestly below state and slightly above national levels. The agency's overall assessed valuation (AV) nearly doubled in the five years prior to 2009 but posted a decline of about 24% through 2013 and increased a modest 1.6% in fiscal 2014.