Financial Revelations Stop Further Credit Downgrades for Central Basin – Agency Eyes Future Upgrades

BY BRIAN HEWS October 13, 2020

Earlier this month, Hews Media Group-Cerritos News exclusively reported that recently hired Central Basin (CB) General Manager Alex Rojas found that former CB Director of Finance Andrew Hamilton’s budget had underreported CB revenue by a $1.5 million and overstated expenses by $700,000.

Hamilton did considerable damage before he was released in August, communicating his budget numbers to Moody’s Rating, which triggered a downgrade of the district’s $24.1 million senior lien obligations and $19.4 million subordinate lien obligations.

The downgrade will raise the cost of borrowing and interests payments for the agency and could put Hamilton square in the sights of the Securities and Exchange Commission.

Today in a press release, Moody’s was playing it cautious and confirmed the Baa3 rating on CB’s senior lien revenue bonds and certificates of participation (COPs) and a Ba1 rating on the district’s subordinate lien revenue bonds.

The damage Hamilton had effected was complete, but Moody’s left the door open for possible future upgrades after the CB Board’s swift actions in July to right-size the organization and stabilize district finances.

The Moody’s assessment of CB indicates that, while improvements have been made, they are cautious about improving the credit ratings until the board allows the newly hired Rojas and new staff to manage district operations without improper interference and micromanaging.

Specifically Moody’s identified criteria for a possible future upgrade:

Demonstrated governance and management stability, including a healthy and trusting relationship among board members, and between the board and the administrative team
Substantial and sustained growth in net revenue to meet escalating debt service, allowing rate convents to be met consistently
Strengthened reserve and liquidity position
Maintenance of sound long term water demand forecast, rate study, and capital improvement plans that are properly executed.

Rojas told HMG-CN, “It is our goal to improve our credit rating and ensure the long-term fiscal stability of the District. The Moody’s report outlined areas of credit strength upon which we can build and their analysis about our future aligns with our strategy to diversify our revenue streams and grow our recycled water services.”

The board recently adopted a budget and district reorganization that will realize nearly $1.2M in annual operating savings starting with the 2021 budget year; this year the District will realize a nearly $550,000 net operating margin.

In addition, the financial shenanigans of Hamilton, along with alleged illegal use of District finances and credit cards, will come to light with the hiring an “accounting detective,” also known as a forensic auditor.

The District will also commission an updated water rate study and pursue local, state, and federal funding opportunities, something that former management did not pursue, to further stabilize the District’s finances and improve operational efficiency.

Central Basin Director Andrew Hamilton Paying Agency Employees Without Oversight or Approval(Opens in a new browser tab)

Central Basin Appointed Directors and Finance Director Disrespect L.A. County Supervisor Janice Hahn(Opens in a new browser tab)