Press Release|Public Finance
KBRA Affirms Ratings for the City of Los Angeles, CA Wastewater System Senior Lien Revenue Bonds, and Wastewater System Subordinate Lien Revenue Bonds; Outlook is Stable
9 Feb 2024 | New York
KBRA affirms the long-term rating of AA+ with a Stable Outlook for the City of Los Angeles, CA Wastewater System Senior Lien Revenue Bonds. The long-term rating of AA with a Stable Outlook for the Wastewater System Subordinate Lien Revenue Bonds is also affirmed. The Outlook on both liens is Stable.
Key Credit Considerations
The ratings were affirmed because of the following key credit considerations:
Credit Positives
- Experienced management team with a track record of implementing timely rate adjustments to meet operating, capital, and debt service requirements.
- Strong legal provisions which, after planned amendments and revisions, will continue to include a 1.25x rate covenant and ABT under the Senior General Resolution, and a 1.10x rate covenant and ABT for combined Senior/Subordinate Bonds under the Subordinate General Resolution.
- Large, stable service area economy and largely residential customer base.
Credit Challenges
- While the City has covenanted to collect rates, fees and charges that meet the requirements of the Resolutions, California Proposition 218 affects the City’s ability to impose rate increases.
- The increased frequency of extreme weather patterns may lead to greater fluctuation in wastewater flows and increased capital investment needs, reinforcing the need for rate setting flexibility.
- Regulatory compliance related to effluent discharge limits may require significant capital expenditures.
Rating Sensitivities
For Upgrade:
- Sustained reduction in System leverage.
- Continued improvement in System liquidity.
For Downgrade:
- Sustained decline in debt service coverage or liquidity.
- Limitations on rate-setting flexibility related to voter initiatives or declining rate affordability that negatively impact the ability to address System operating, maintenance or capital needs.
To access rating and relevant documents, click here.