San Diego advances $475m water bond issue amid Moody's downgrade
City of San Diego Public Utilities Department, California · Meeting date: June 16, 2026 · Published: June 17, 2026
The San Diego City Council has approved the preliminary official statement for its Series 2026A water revenue bonds, targeting $140 million in new money for capital projects while brushing off a recent credit rating downgrade.
Key points
- The bond package is expected to generate approximately $475 million total, with $140 million in new money for water system capital improvements and commercial paper repayment.
- Moody's downgraded the water utility's revenue bonds from Aa2 to Aa3, citing reduced liquidity, coverage ratios, and uncertainty over future rate increases.
- The refinancing component of the bond issue is projected to generate $32.3 million in net present value savings.
- City finance officials expect the downgrade to have a minimal impact on borrowing costs, estimating a potential increase of just five basis points.
- The water utility's debt service coverage ratio is estimated at 1.41x in FY 2026, projected to rise to 2.17x over the next five years.
Full report
The San Diego City Council unanimously approved the preliminary official statement for the Public Facilities Financing Authority’s Series 2026A Senior Water Revenue Bonds during its June 16 meeting, moving forward with a major debt issuance despite a recent credit downgrade.
The transaction is expected to generate approximately $475 million in bond proceeds. According to Marisol Valdovinos, a financing coordinator for the city's Department of Finance, the funds will be primarily used to repay outstanding commercial paper, fund water system capital improvements, and refund outstanding water revenue bonds. The financing plan includes roughly $140 million in new money proceeds, carrying an estimated true interest cost of 4.42%.
The refinancing component is projected to generate significant savings for the water utility, with an estimated net present value savings of 8.9%, totaling approximately $32.3 million.
However, the bond issuance comes on the heels of a credit rating adjustment. Earlier on the day of the meeting, Moody's downgraded the ratings of the senior water revenue bonds from Aa2 to Aa3, while changing the outlook from negative to stable.
Assistant Director of Finance Jyoti Pantlu informed the council that Moody's cited a "reduction in the water utility's liquidity and coverage ratios, along with uncertain ability to raise rates to maintain adequate liquidity" as the primary reasons for the downgrade. Prior to this, both Moody's and Fitch had placed the water utility bonds on a negative outlook in the previous year.
Despite the downgrade, city officials remain confident that the impact on the upcoming bond sale will be minimal. Pantlu noted that because the bonds remain in the AA category, the practical impact on the cost of borrowing is expected to be an increase of only about five basis points, or 0.05%, depending on market conditions at the time of pricing.
Financial projections presented to the council indicate that the water utility's debt service coverage ratio is estimated at 1.41x in fiscal year 2026, with expectations to increase to 2.17x over the five-year projection period. Anticipated debt service for the new money bonds will be approximately $3.6 million in FY 2027, transitioning to roughly $8.4 million annually through FY 2057.
With the council's authorization secured, the city expects to price the bonds on July 1, 2026, with an anticipated closing date of July 14, 2026.
This summary was generated by AI based on the source document and may contain errors.
Source: Tuesday Agenda and Results Summary, City of San Diego Public Utilities Department