OREANDA-NEWS. Fitch Ratings has placed the 'AA-' underlying ratings of the Westlands Water District, California (Westlands or the district) water revenues on Rating Watch Negative:

--$97.3 million revenue certificates of participation (COPs), series 2005A, 2007A, 2007B and 2008A;
--$22.1 million revenue COPs, series 2008A (bank bonds);
--$74.2 million revenue refunding bonds, series 2012A.

In addition, Fitch places the following 'AA-' rated San Luis & Delta Mendota Water Authority, CA bonds on Rating Watch Negative:

--$29.8 million refunding revenue bonds (Delta Habitat Conservation and Conveyance Project), series 2013A.

The Negative Watch is based on Securities and Exchange Commission (SEC) findings that the district and two district officials violated federal securities laws in association with the district's 2012 bond issuance by misleading investors about the district's financial position. The SEC has fined the district and two district officials, and instituted a cease-and-desist order against all three.

The cease-and-desist order cites that Westlands failed to disclose that: (1) it engaged in extraordinary accounting transactions in 2010 for the sole purpose of recognizing additional revenues for calculating debt service coverage (DSC) without imposing rate hikes on customers, and (2) a 2012 prior period adjustment related to the accounting for certain expenses would have materially decreased DSC in 2010 had the expenses been recorded during 2010. Neither situation was disclosed to investors.

Fitch expects to resolve the Negative Watch following an assessment of the implications of the SEC's order as it relates to the district's management and financial results.