Press Release|Public Finance
KBRA Assigns AA+ Rating, Stable Outlook to the Department of Water and Power of the City of Los Angeles Water System Revenue Bonds, 2025 Series A
6 Jan 2025 | New York
KBRA assigns a long-term rating of AA+ to the Department of Water and Power of the City of Los Angeles Water System Revenue Bonds, and affirms the AA+ rating on outstanding parity Water System Revenue Bonds. The Outlook is Stable.
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 2019 at a compound annual growth rate of 5.9%, given the Department’s relatively wealthy customer base.
Credit Challenges
- Leverage has declined in recent years but remains elevated. Further increases in leverage are anticipated with the implementation of the ambitious 2025-2029 Water System CIP, which focuses on enhancing local water supply.
- The Department’s ability to implement future water rate increases may be constrained by Proposition 218, with negative rating implications should actual debt service coverage fall below existing Board established coverage metrics and historical averages because of this measure.
Rating Sensitivities
For Upgrade
- Sustained reduction in Water System leverage and a trend of continued strength in DSC.
- Favorable progress in addressing the infrastructure needs of the Water System.
For Downgrade
- Sustained decline in DSC or liquidity.
- Deterioration of service area economic conditions leading to reduced rate-setting flexibility.
- Inability to implement future water rate increases due to constraints imposed by Proposition 218.
To access ratings and relevant documents, click here.