2009-05-19 00:11:01 -

In the course of routine surveillance, Fitch Ratings affirms the 'A+' rating on Indian Wells Valley Water District (the district), California's $4.8 million of outstanding water revenue refunding bonds, series 2003. The bonds are payable from a senior lien on and pledge of the net revenues of the authority's water system (the system). The Rating Outlook is Stable.

The 'A+' rating

reflects the district's strong financial performance in terms of debt service coverage and liquidity, affordable rates, and stable economy. The rating also reflects the remote location of the district and its heavy dependence on defense-related infrastructure for economic sustainability. Additionally, rising capital and operating costs could pressure rate affordability. The Rating Outlook is Stable.

While the community is expected to remain closely tied to the local defense infrastructure, limited growth from retirees and the provision of regional services is ongoing. The city's population has grown a moderate 10.2% over the 2003-2008 period. Income levels are in line with the national average and unemployment is tracking the county and national levels.

The district provides residential and nonresidential water services to approximately 12,000 customers; roughly 92% of customers are single-family residential accounts. The district's 2008 water production averaged 7.6 million of gallons per day (mgd). Its water delivery system consists of about 216 miles of pipe, 11 active wells, 9 booster facilities and 10 storage tanks. The district's capital program is estimated at a manageable $29 million of which $7 million is being set aside for arsenic treatment. Approximately 82% of future capital outlays are expected to be financed with debt, with the remaining 18% to be funded on a pay-as-you-go basis. Current water rates are competitive and should remain so even with planned rate increases over the next few years. Water service charges are billed monthly and delinquency rates are very low.

While existing water supplies are adequate, the district continues to explore the purchase of or connection to additional supplies as well as desalination of brackish water. The district's supplies are expected to be sufficient to meet demands for the next few decades.

The district's financial position is strong as of the end of the 2008 fiscal year. The district maintained a healthy 505 days of operating cash on hand and 396 days of working capital. Debt service coverage based on fiscal 2008 net revenues totaled 3.5 times (x), though coverage could decline to lower levels with the district's projected debt issuance.

Located in northeastern Kern County, the district encompasses about 38 square miles including the city of Ridgecrest and surrounding unincorporated areas. The district provides water to an estimated 28,000 residents, the vast majority of whom rely on the nearby China Lake Naval Air Weapons Station and related contractors for employment. The China Lake facility remains a key military asset which, while not immune to reductions, offers specific and unique research and development and testing opportunities.

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Fitch Ratings, New YorkJulie Seebach, +1-512-215-3740 (Austin)Christopher
Hessenthaler, +1-212-908-0773Media Relations:Cindy Stoller,
+1-212-908-0526 cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com