East Bay Municipal Utility District, CA -- Moody's affirms Aa1/VMIG 1 rating on East Bay MUD's Water system Refunding Revenue Bonds Series 2009 A-1

New York, November 09, 2012 -- Moody's Investors Service has affirmed the Aa1 long-term rating and VMIG 1 short-term rating on East Bay Municipal Utility District's Water System Revenue Refunding Bonds, Series 2009 A-1. This update was conducted in conjunction with the scheduled reoffering of $41,040,000 of 2009 A-1 bonds on December 1, 2012.

RATING RATIONALE Short Term Rating The VMIG 1 reflects our expectation that the district will be able to finance the tendered bonds in a timely manner given the operational and financial stability of the district, its high Aa1 long-term rating, and its frequent market participation. The district issued long-term bonds in 2001, 2003, 2005, 2007, 2008, 2009, 2010, 2011 and 2012, and successfully refunded nearly $1 billion of variable rate debt at the height of the market disturbances in the spring of 2008. Further supporting assignment of the VMIG 1 is the district's strong management and our expectation that the district will take all steps necessary to ensure payment of the tender, including liquidation of reserves in a case where this would be the only near-term option to pay.

Important to our analysis, the district has a written policy that it will have a take-out plan in place at least 90 days in advance of the tender. Key features of the policy include, if continuing in the SIFMA mode, pricing the take-out bonds at least thirty days prior to the mandatory tender, and authorizing documents for alternative refunding bonds between 60 and 30 days prior to the mandatory tender. With this authorization in place, the district should have ample time to issue alternative refunding bonds in case of unsuccessful pricing 30 days prior to the tender date. Further, the Indenture requires the district to notify the trustee which new mode it plans to convert to 90 days prior to the end of the Long-Term Interest Rate Period. Failure to redeem the tendered bonds would cause a cross default of all of the district's parity debt.

Long Term Rating

The rating reflects the following fundamental credit factors: (i) largely built out nature of this district's large and economically diverse service area; (ii)customers' wealth and income levels which remain significantly above national medians for counties (iii)the district's ample supply of high quality water with good reliability and a large degree of independence from Bay Delta quality and supply issues; (iv) the completion of a supplemental water project which will improve supply during dry weather conditions; and (v) a history of financial operations with timely rate increases which secure ample liquidly for the rating level, but debt service coverage levels that are significantly below the median for similarly rated systems.

Also reflected in the rating is the proven expertise of management, which has a long history of success in meeting immense challenges inherent to the water system, including upgrading its seismic reliability, while maintaining affordability for its customers, and the current program of enhancing dry weather water supply.

The rating also includes the following considerations: the high level of maintenance of the system, which the district has achieved with a substantial amount of debt as well as system revenues; the relatively weak legal provisions, which include a weak rate covenant and revenue test for issuing additional parity bonds. However, Moody's expects that the district will continue its historical practice of maintaining more conservative financial operations than those stipulated by the legal covenants.

Moody's also notes that current debt service coverage levels are low for the current rating level. The narrowing of debt service coverage levels is largely due to the conservation necessitated by the recent drought, the recent period of ample precipitation, and the cooler than average summer. However, the district's strong management weighs heavily on the district's rating, and the rating continues to assume that management will be able to reach its own targets, as projected, from 2012 onward The district's 2012 unaudited results indicate restoration of debt service coverage ratios to the targeted ratio of 1.6 times, although with the use of a significant amount of one time revenues. Given the inherent volatility of the water system's revenues and the district's significant exposure to variable rate debt, we believe that debt service coverage ratios and liquidity levels consistent with the district's recent past are essential to preserving bond holder security consistent with the current rating level.

In addition to the credit factors outlined above, the ratings also benefit from these ongoing notable developments: the variable rate restructuring will significantly reduce the district's exposure to variable rate debt; the district's intention to rely more on on-going revenues for its Capital Improvement Program, thereby increasing its net revenues and debt service coverage levels.

Key Short Term Credit Strengths

Detailed variable rate debt management policy including:

Requirement to price refunding bonds 30 days prior to the mandatory tender date.

Availability of authorization of long term refunding debt if refinancing plans run into difficulties

Key Short Term Credit Challenges

Inherent exposure to market uncertainties

Key Long Term Credit Strengths

Strong Service Area Strong Management Ample high quality water Limited future borrowing needs

Key Long Term Challenges

Below average debt service coverage levels

High debt levels

Still high variable rate exposure

Outlook

The stable rating outlook is based on Moody's expectation that, despite weak legal provisions the district will continue to maintain conservative financial operations and maintain debt service coverage levels consistent with its own targets of 1.6 times with ongoing revenues and expenditures. In addition, the stable rating outlook reflects our expectation that the district will maintain strong cash reserves consistent with historic levels.

WHAT CAN MAKE THE LONG TERM RATING GO UP

Significantly higher coverage levels

WHAT CAN MAKE THE LONG TERM RATING GO DOWN

Continued below average debt service coverage levels

Additional variable rate exposure

Significantly more debt

Deterioration of liquidity position

PRINCIPAL METHODOLOGY USED

The principal methodologies used in this rating were Analytical Framework For Water And Sewer System Ratings published in August 1999 and Variable Rate Instruments Supported by Third-Party Liquidity Providers published in November 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Kevork Khrimian Vice President - Senior Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Gregory W. Lipitz Vice President - Senior Analyst Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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