Monday, November 30, 2015

Standard & Poor's May 1, 1998: Sierra Madre Financing Authority, CA Bonds Assigned A+ SPUR by S&P

Mod: A little blast from the past. What follows is the Standard & Poor's announcement of  the now notorious water bond deal the City of Sierra Madre made way back in 1998. A part of the reason why the Water Department is so badly hamstrung when it comes funding water infrastructure repairs is the large amount of bond debt it is currently carrying. The service on which eats up a whole rashers of cash. As an introduction, here is a quick summary of all water bond money owed as of August 2013 (link).

Mod: It is important to note that Sierra Madre is making interest only payments on the 2003 bonds, which is an extremely expensive way to go. Here is Standard & Poor's 1998 announcement (link):

Sierra Madre Financing Authority, CA Bonds Assigned A+ SPUR by S&P
NEW YORK, April 30 /PRNewswire/ -- Standard & Poor's today assigned its
 single-'A'-plus underlying rating (SPUR) to Sierra Madre Financing Authority,
 Calif.'s water revenue refunding bonds series 1998A dated May 1, 1998 due
 May 1, 2015.  The bonds, which are expected to receive a triple-'A' rating
 based on bond insurance, are scheduled to sell the week of May 11, 1998.

     The underlying single-'A'-plus rating reflects the following strengths:
     -- Significantly improved and strong financial performance,
     -- Manageable capital plan with no future debt requirements, and
     -- Low rates and a stable primarily residential customer base.

 A credit concern is that approximately 30% of annual water requirements
 is dependent on groundwater pumping credits associated with seasonal rainwater
 runoff. Sierra Madre obtains all of its water from groundwater and has
 adjudicated groundwater pumping rights that provide approximately 70% of
 annual water requirements.

 Although the city routinely exceeds its adjudicated
 pumping rights to meet its average daily demand of 2.48 mgd, it receives
 credit for captured canyon rainwater runoff, which recharges the groundwater
 basin through the city's own spreading grounds. With this additional credit,
 the city has adequate overall pumping rights, but is subject to seasonal
 rainfall constraints. Additionally, as a member of the San Gabriel Valley
 Municipal Water District, the city has access to supplementary groundwater
 supplies when adjudicated pumping rights and credits cannot meet water needs,
 which last occurred in 1983. This supplementary water supply is adequate to
 meet the city's estimated growth during the next 30-40 years.
 The bonds are secured by installment payments that the city has pledged
 as a first lien on the net revenues of its water enterprise. The bonds are
 being issued for refunding purposes and capital improvements consisting of a
 new well and seismic upgrades of water storage reservoirs. Located 17 miles
 northeast of downtown Los Angeles, Sierra Madre (population 11,300) is a
 bedroom community with household wealth levels that exceed state levels by 23%
 and national averages by 28%. The city provides water service to a stable
 customer base that is primarily residential.

 Poor management in the early 1990s resulted in leaving the water
 enterprise with no liquidity by the end of fiscal 1994. However, since 1994,
 rate increases have been imposed that have restored liquidity to a strong cash
 balance of $2.1 million by the end of fiscal 1997, equivalent to over three
 years of operating expenses.  Coverage of annual debt service has also
 increased to 5.54 times (x) in 1997 from 1.73x in 1994. The new money portion
 of this bond issue doubles the enterprise's debt but coverage is expected to
 remain a still strong 2.35x through 2002.

 Bond proceeds will fund a three-year, $2.6 million capital plan.  Additional
 annual system replacement costs of approximately $450,000 can easily be
 funded by net system revenues with no additional debt requirements. Monthly
 rates are currently $16.90 for 7,500 gallons of consumption and when combined
 with a low monthly average sewer bill of $5 (sewer service provided by the
 Los Angeles County Sanitation Districts), the combined monthly bill is a low
 $21.90. No water rate increases are planned through 2002.

 The outlook reflects the expectation of sound financial management of the
 water enterprise and continued strong financial performance. Additionally,
 coverage margins provide flexibility to absorb fluctuations in water usage due
 to prolonged drought and wet weather conditions, Standard & Poor's said. --

 SOURCE  Standard & Poor's CreditWire

Mod: One more thing that might be interesting to note. While back in 1998 the aforementioned Sierra Madre water bond refunding could be accomplished at reasonable interest rates due to that A+ rating mentioned above, no such deal could ever be made today. Which is a shame since the Water Department is being dinged for some very high 5% interest rates for its 2003 series bonds. The reason for this being Sierra Madre's water bonds are currently rated junk. The following comes from a May 2015 report issued by Moody's (link).

Mod: It was a long trip down to get to where we find ourselves today.


  1. Why would the city sell $6.75 million dollars in water bonds and then only make interest payments? That is insane!

    1. Ask yourself this question. Who was running the city council in 2003? Hint: first name starts with a "B".

    2. Batman! I knew it!

    3. Brandy? She was a fine girl.

    4. Buck Cannon. A real straight shooter.

  2. The problem is this, City Hall should have been drinking the water instead they were drinking Kool-Aid. Now it looks like they want us to drink the Kool-Aid, just look at our water now.

  3. Did they spend that money on the pipelines? I guess not. So where did it all go?

    1. The 2003 bonds? Water infrastructure designed to enable the Downtown Specific Plan. After the residents voted that nonsense into oblivion the money the Mayberry Mafia had hoped to realize in taxes never materialized, which is when they had to go to interest only payments. Borderline criminal if you ask me. They committed the taxpayers to many millions of dollars in new debt, and never even told them the real reason why.

    2. Easier to do interest-only bonds than it is to raise the water rates. After all, the moeny was spent in 2003 and the big payments don't start until 2020. In other words, screw a bunch of residents in 2020-2030 who may have never lived in SM in 2003. Hell of a deal.

  4. Off the subject, does anyone know why the county fire/rescue helicopter flies along the foothills every morning between 7:15 and 7:30? I heard it was delivering VIP's to work, that can't be but as you know curiosity killed the cat. Thank you.

    1. Sorry, don't know why but the noise is upsetting. Plus I have new cracks in my plaster/walls. Noise everywhere every day, especially those gardeners and their leaf blowers!.

  5. I have noticed the same . No respect for the residents under their lazy flight path.They could fly higher and further North to avoid the Vietnam chopper in action sound effects. But of course they do not care about us - it's the Govt.we voted for ?

    1. 7:46, 8:50, please don't complain about a fire safety check!

    2. I didn't see any fires. Isn't there usually smoke first?

  6. No fire, no safety -just commuting in regal style.
    They could see any fire from miles away at 15,000 ft. Flying so low restrict their ability to see any smoke anyway.
    As usual someone is making excuses for abusive behavior or the Authorities.

    1. I blame the 210 commuters. If people just drove better then county officials wouldn't need to take the chopper.

    2. Let them eat Gold Line.

    3. I think that is why they need to raise sales taxes a half of a penny. Those helicopter rides are not cheap.

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