The Los Angeles Department of Water and Power heads to market Dec. 8 with $248 million in water system revenue bonds that carry a negative outlook from Fitch Ratings.
The bond proceeds will be used to refund all or a portion of LADWP’s water system revenue bonds, series 2011A and series 2016A maturing on July 1, 2035 and July 1, 2040, and to pay certain costs of issuance, according to Fitch.
Fitch modified the outlook to negative ahead of LADWP’s $151.5 million water system revenue bond refunding priced Aug. 19 by Ramirez & Co. The rating agency affirmed the negative outlook and a AA rating in a Monday report ahead of the Dec. 8 deal.
Moody’s Investors Service and Kroll Bond Rating Agency affirmed ratings of Aa2 and AA-plus, respectively, on Tuesday. Both gave stable outlooks.
Fitch’s outlook was changed to negative, and the rating affirmed at AA for the water system, according to Fitch, because “previous expectations were that the leverage profile would moderate, but it now appears likely to remain near its fiscal 2019 level.”
LADWP’s financial profile remains strong, according to Fitch, but the negative outlook reflects Fitch’s expectation that leverage could remain closer to 9 times over the intermediate term, which is considered elevated for the rating.
“Prior expectations were for a decrease in leverage in fiscal 2019 and a continued gradual decline,” Fitch analysts wrote. “Debt service coverage is stable between 1.6 times and 1.7 times and liquidity remains strong.”
Additionally, Fitch has affirmed the AA rating on LADWP’s outstanding bonds including $4.8 billion water system revenue bonds, prior to refunding; $182.3 million in bank bonds corresponding to the variable rate series 2001B-1, B-2, B-3 and B-4 bonds; and $200 million in bank bonds corresponding to the variable rate series 2019 A-1 and A-2 bonds.
Moody’s Investors Service assigned a Aa2 rating with a stable outlook to the upcoming sale of water system revenue bonds and maintained a Aa2 rating on $5.1 billion of the department’s $5.2 billion in outstanding water system revenue bonds, including bonds being refunded with the current issuance.
“The stable outlook reflects our expectation that the system will continue to maintain sound finances and a broad and stable customer base while effectively managing its debt and capital programs,” Moody’s analysts wrote in Tuesday’s report.
Moody’s cited LADWP’s exceptionally large customer base and local economy, providing a base of ratepayers that is among the largest in the nation in affirming the rating.
“The rating further reflects the Water System’s solid financial profile, with predictable revenue that provides healthy debt service coverage and funds a large capital program,” Moody’s wrote. “We do not see any material immediate credit risks for the LADWP’s Water System, which has seen only a slight increase in delinquent payments and is working with customers to provide payment options.”