KBRA Assigns AA+ Rating, Stable Outlook to the Department of Water and Power of the City of Los Angeles (LADWP) Water System Revenue Bonds, 2024 Series B
6 May 2024 | New York
KBRA assigns a long-term credit rating of AA+ to the LADWP Water System Revenue Bonds, 2024B and affirms the outlook on outstanding parity Water System Revenue Bonds. The Outlook is Stable. The rating reflects institutionalized Departmental financial management policies and procedures that have enabled maintenance of strong liquidity and debt service coverage. A water rate structure that effectively decouples revenue generation from changes in customer demand, and the solid wealth metrics of the Water System service area further underpin the rating.
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%, given the Department’s relatively wealthy customer base.
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 future water rate increases may be constrained by Proposition 218 and/or, Voter Initiative 1935, with negative rating implications should actual debt service coverage fall below existing Board established coverage metrics and historical averages because of either of these measures.
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.