Bangkok--8 Aug--Standard & Poor's
Standard & Poor's Ratings Services has assigned its 'AA' rating to the Los Angeles Department of Water and Power (LADWP), Calif.'s proposed $311.65 million water system revenue bonds, series 2011A. At the same time, Standard & Poor's affirmed its 'AA' rating on LADWP's $3.08 billion of parity water system revenue bonds. The outlook is stable.
"The utility's approximately 666,000 customers provide California's largest retail water supplier with a broad and mature revenue stream," said Standard & Poor's credit analyst David Bodek. LADWP earns about 70% of its revenues from residential customers. Although we typically view a highly residential customer base as having the potential to contribute to revenue stream stability, water sales volumes fell nearly 17% from 2008-2010 because of drought conditions and related water use restrictions that persist even as water conditions improved in 2010 and 2011.
LADWP continues to exhibit sound financial metrics. However, the utility projects that it will need to obtain council and board approval to raise rates more than 30% through 2016 to maintain coverage levels.
The city council responded to rising operating costs and debt with approved base rate increases of 2.75% for 2006 and 2007, and 3.10% for 2008 and 2009. In June 2009, the board imposed a 15% surcharge to compensate for the drought's impacts on consumption.
The bonds are payable from the municipal, retail water system's net revenues. The utility's electric system revenues are not pledged to water system bondholders. LADWP plans to use bond proceeds to refund a portion of the utility's debt outstanding.
The stable outlook reflects our assessment of the benefits of a deep and diverse service area economy, sound financial performance, and recent rate increases that respond to the financial pressures associated with large capital needs and rising costs. Our view of the need for rate increases to achieve the utility's financial targets, substantial additional debt needs for water quality standards and to preserve system integrity, and the narrow balance between water supply and water demand constrain the upward rating potential.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Key Water And Sewer Utility Credit Ratio Ranges, Sept.15, 2008
USPF Criteria: Standard & Poor's Revises Criteria For Rating Water, Sewer, And Drainage Utility Revenue Bonds, Sept. 15, 2008
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
David Bodek, New York (1) 212-438-7969
Peter V Murphy, New York (1) 212-438-2065