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31-Oct-2025 | 12:42 EDT
Santa Ana Financing
Authority, CA Water Revenue
Bond Outlook Revised To
Negative On Weakened
Liquidity
View Analyst Contact Information
S&P Global Ratings revised its outlook to negative from stable and affirmed its 'AA' long-term rating on Santa Ana Public Financing Authority, Calif.'s existing water revenue bonds, issued on behalf of the city of Santa Ana.
The outlook revision reflects the water system's reduced available liquidity in fiscal 2024 to about 32 days' cash on hand. We understand liquidity will improve to sufficient levels in the near term as the city considers rate adjustments. However, we could lower the rating over the next two years if liquidity is not replenished to projected levels based on the upcoming rate plan.
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3/10/26, 9:55 AM Santa Ana Financing Authority, CA Water Revenue B | S&P Global Ratings https://www.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3470161 1/7 ENGLEWOOD (S&P Global Ratings) Oct. 31, 2025--S&P Global Ratings today took the rating actions listed above.
In our view, Santa Ana water utility has greater physical risks in our credit consideration, which the system is managing through drought management, conservation, and PFAS mitigation. Contamination from PFAS has been found throughout the state, including in several Southern California counties.
The city has entered into an agreement with OCWD pursuant to which OCWD will design and construct PFAS treatment facilities at its own expense at all affected wells. To address these changing contaminant levels, the city in collaboration with OCWD is undertaking water treatment enhancement projects. During the construction period, the city faces increased imported water purchases from MWD, which are significantly more costly than the groundwater alternative. The rate structure allows these costs to be passed through, which we view favorably. The quality of the drinking water provided by the system meets all drinking water standards set to protect public health.
The city has a comprehensive water conservation program that is ongoing, even during periods of normal water supply. The city monitors water sales and expenditures monthly and relies on customers to voluntarily conserve water in conjunction with the city's current master plan, future supply projections, and various drought related scenarios to adjust as necessary. We believe by adopting and adhering to the utility's master plan, the city is making proactive strides to lessen its exposure to the region's current climate, supply, contamination, and drought-related risks.
In addition to physical risk, rising water costs could result in elevated affordability risk although we are not aware of material customer resistance to the current rate plans. Management continues to work with its community to address affordability risks and offers a subsidized commodity rate to low- income customers. The utility's governance risks, related to risk management, oversight, and culture, are neutral and are highlighted by its credit supportive rate-setting practices and comprehensive management policies. The utility
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3/10/26, 9:55 AM Santa Ana Financing Authority, CA Water Revenue B | S&P Global Ratings https://www.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3470161 2/7 has a comprehensive long-term capital improvement plan for continued investment in renewal and replacement, facility improvements, and required growth projects.
The negative outlook reflects our view that there is at least a one-in-three chance that negative financial pressures persist in the water fund due to rising costs, which could limit material improvement in liquidity levels. During the outlook period, we will examine whether the city completes its rate study with the assistance of an external consultant and implements its rate plan to preserve the water system's financial profile.
We could lower the rating if the utility is unable to replenish its liquidity reserves and restore them to healthy levels or if all-in DSC metrics decline due to rising costs despite rate adjustments that would indicate erosion of financial margins and, in turn, diminished credit quality.
We could revise the outlook to stable if the upcoming rate plan supports maintenance of healthy all-in coverage and liquidity levels commensurate with those of peers at the current rating, while the utility completes its capital improvement plan while mitigating water supply constraints.
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