Fitch Ratings assigns its 'AA+' rating to the following wastewater system revenue refunding bonds issued by the East Bay Municipal Utility District, CA (EBMUD or the district):

--Approximately $60.6 million series 2015A.

Proceeds of the series 2015A bonds will advance refund fixed-rate series 2007A bonds for level savings. Depending on market conditions, EBMUD may increase the series 2015A issuance to refund series 2010A fixed-rate bonds or series 2011A SIFMA bonds. Bonds are expected to price on Jan. 27, 2015. The bonds will not have a debt service reserve fund.

Fitch also affirms the following outstanding EBMUD ratings:

--$396.4 million wastewater system revenue bonds, series 2007A, 2007B, 2010A, 2010B, 2012A, 2014A and 2014B at 'AA+';

--$16.4 million wastewater system SIFMA bonds, series 2011A at 'AA+/F1+';

--$15 million outstanding wastewater system subordinate lien extendible commercial paper (CP) notes at 'F1+'.

The Rating Outlook is Stable.

SECURITY

Bonds are payable from net revenues of the wastewater system. Tax receipts are not pledged to bondholders.

KEY RATING DRIVERS

STRONG SERVICE AREA: EBMUD provides wholesale wastewater treatment services to seven customers with a combined population of approximately 650,000 in Alameda and Contra Costa counties. Growth pressure is modest although regulatory requirements have increased.

HEALTHY FINANCIAL MARGINS: Margins are healthy with Fitch-calculated debt service coverage of revenue bonds of 1.85x in fiscals 2013 and 2014. Liquidity is strong. Management's financial forecast projects continued compliance with the district's 1.6x target threshold and forecast assumptions appear reasonable.

REVENUE DIVERSITY; RATE FLEXIBILITY: Revenue diversity and a high degree of fixed charges (45% of dry weather user charges) provide revenue stability. Rate flexibility is demonstrated by the Board's recently approved rate increases and combined water and wastewater bills which are competitive in the region.

TREATMENT CAPACITY EXCESS: Excess treatment capacity is managed by sales to regional waste suppliers through the resource recovery program. Additional revenue provided by this program provides some rate relief to customers and offsets the costs associated with excess capacity.

REGULATORY COMPLIANCE REQUIRED: Despite the excess capacity during dry weather, the treatment plant is undersized to treat infrequent, unusually large wet weather flows. A Consent Decree announced in 2014 will govern improvements by the district and regional retail utilities to reduce wet weather discharges by 2036.

LONG-TERM MARKET ACCESS: The 'F1+' ratings on the extendible CP notes and series 2011 index bonds correspond to the long-term rating on EBMUD's wastewater revenue bonds and to the terms of the CP program that allow repayment to be extended in the event of a failed remarketing.

RATING SENSITIVITIES

STABLE OUTLOOK: The rating is sensitive to shifts in fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The district provides wholesale wastewater treatment service to approximately 650,000 people within an area of the district designated as Special District No. 1. The majority of the wastewater service area (94%) is located in Alameda County. Alameda County participates in the broad San Francisco Bay Area regional economy and benefits from its diverse labor market, high income levels, and strong tax base. Unemployment rates have improved, dropping from 11.7% in mid-2010 to 5.6% in May 2014, exceeding the national average at both peak and trough.

Seven wholesale customers provide collected wastewater to the district for treatment and disposal. Customers include the cities of Alameda, Albany, Berkeley, Emeryville, Oakland and San Leandro, and the Stege Sanitary District (which includes El Cerrito, part of Richmond, and unincorporated areas of Contra Costa County).

CALIFORNIA DROUGHT

California is experiencing a multi-year severe drought. Water utilities across the state, such as EBMUD, have asked customers to conserve water and may implement greater restrictions in the coming year if the drought continues. Lower water usage that will result from water use restrictions is not expected to be as disruptive to EBMUD's wastewater revenues as it would be to water revenues, given the higher percentage of fixed charges.

EXCESS TREATMENT CAPACITY DURING DRY WEATHER

EBMUD's main wastewater treatment plant has a permitted capacity of 120 million gallons per day (MGD) in dry weather and a maximum of 168 MGD during wet-weather storm events. The district's average daily flow from its member communities has ranged between 60 and 82 MGD in the last 10 years. The plant provides secondary treatment and discharges through a mile-long, deepwater outfall into the San Francisco Bay.

In order to maximize the value of the plant's excess capacity, the district operates a resource recovery program. The program accepts liquid and solid waste streams delivered by truck from both inside and outside the service area for treatment. The program, which began in 2001, provides substantial additional revenues to the district of around $10.6 million, or around 9.8% of total revenues. The district expects the revenues from its resource recovery program to decline in future years as competition from other regional treatment plants with capacity increases.

REGULATORY REQUIREMENTS RELATED TO WET WEATHER

Despite the excess capacity during dry weather, treatment capacity is not sufficient to meet flow during peak storm events because of the inflow and infiltration (I&I) of rainwater and storm run-off into collection pipes.

The district's wet weather treatment and discharge facilities provide primary treatment of wet-weather overflows for direct discharge into the San Francisco Bay. However, stricter regulatory guidelines resulted in a Cease and Desist Order issued in 2009 to EBMUD to end all primary treatment discharges into the San Francisco Bay.

EBMUD and its retail utility customers have been in negotiations with the U.S. Environmental Protection Agency, the SWRCB and the Department of Justice since January 2013. The parties announced a final Consent Decree in 2014 that lays out a compliance timeline through 2036. EBMUD's share of Consent Decree-related capital costs is around $5 million annually.

MODEST CAPITAL NEEDS DESPITE EXPECTED CONSENT DECREE

The district's fiscal 2014-2018 capital improvement plan is moderate at $155.1 million. Major projects are related to replacement and rehabilitation of older facilities, such as the digester upgrade project, the concrete rehabilitation project, treatment plant infrastructure project, and the interceptor rehabilitation project.

The district's debt burden is above average for the rating category. Debt per capita is $700 as compared to the rating category median of $514. Debt amortization is slow with only 28% and 61% maturing in the next 10 and 20 years, respectively. EBMUD expects $20 million in debt to occur in 2017. Of the $442 million in total outstanding system debt, 90% is currently fixed-rate.

HEALTHY FINANCIAL PERFORMANCE

Fitch calculated debt service coverage in fiscal 2014 was 1.85x and all-in debt service coverage was 1.71x, including payment of CP and general obligation (GO) bonds. Tax revenues are included in Fitch's coverage calculation although they are not pledged to revenue bondholders. Fitch's all-in debt service includes payment of the GO bonds. Debt service coverage levels are projected to remain at or above this level in management's five-year forecast. Debt service payments are flat over the next five years.

Liquidity has improved in recent years to $91.3 million in unrestricted cash and investments at the end of fiscal 2014 or 610 days operating cash. This includes $17.5 million in EBMUD's rate stabilization fund.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from CreditScope.

Applicable Criteria and Related Research:

--'U.S. Water and Sewer Revenue Bond Rating Criteria' (July 2013);

--'Rating U.S. Public Finance Short-Term Debt' (Dec 2013).

Applicable Criteria and Related Research:

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

U.S. Water and Sewer Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715275

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=964156

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