Press Release|Public Finance
KBRA Assigns AA+ Rating to the Department of Water and Power of the City of Los Angeles Water System Revenue Bonds, 2024 Series A; Outlook is Stable
20 Dec 2023 | New York
KBRA assigns the long-term rating of AA+ with a Stable Outlook to the Department of Water and Power of the City of Los Angeles (LADWP) Water System Revenue Bonds, 2024 Series A.
Concurrently, KBRA affirms the long-term AA+ rating and Stable Outlook on the Department's outstanding Water System Revenue Bonds.
Key Credit Considerations
The rating was assigned because of the following key credit considerations
Credit Positives
- Established water system serving one of the largest metropolitan areas in the United States, with a primarily residential customer base and low commercial and industrial rate payer concentration.
- Rate structure incorporates several pass-through adjustments that effectively decouple revenue generation from changes in customer demand.
- Water rates remain competitive and affordable, despite having increased annually since 2018 at a compound annual growth rate of 5.2%.
Credit Challenges
- Existing leverage is high, and further growth is expected with the implementation of the ambitious 2024-2028 Water System CIP, which focuses on enhancing local water supply.
- The Department’s ability to implement water rate increases may be constrained by Proposition 218.
- Legal provisions provide for a sum-sufficient rate covenant. However, the Board has directed LADWP to set water rates sufficient to achieve a minimum 1.70x DSC, and coverage has consistently exceeded this threshold in recent years.
Rating Sensitivities
For Upgrade
- Sustained reduction in Water System leverage and stronger DSC.
- Favorable progress in addressing infrastructure needs of the Water System.
For Downgrade
- Sustained decline in DSC or liquidity.
- Deterioration of economic conditions in the service area leading to reduced rate-setting flexibility
To access rating and relevant documents, click here.