Bangkok--6 Feb--Standard & Poor's
Standard & Poor's Ratings Services has assigned its 'AA-' rating to the Los Angeles Department of Water and Power (LADWP or the department), Calif.'s proposed $135 million power system revenue bonds, series 2009A. At the same time, Standard & Poor's affirmed the 'AA-' standard long-term rating and underlying rating on the department's parity power system revenue bonds and the 'A-1+' rating on its $200 million power system revenue commercial paper (CP) notes. The outlook on the long-term ratings is stable. The bonds and the CP notes are payable from the net revenues of LADWP's retail electric system. The CP notes are parity obligations with the power system's revenue bonds outstanding.
"LADWP exhibits, in our view, sound financial metrics after accounting for direct debt and off-balance-sheet financial commitments," said Standard & Poor's credit analyst Peter Murphy. However, the utility is projecting that $5.3 billion of 2009-2013 capital needs and rising operating costs will place pressure on financial margins. The department is to finance about $3.8 billion of the capital program with debt. "We do not expect recently adopted rate increases to fully keep pace with rising costs, although moderate additional rate increases could preserve financial metrics," Mr. Murphy added.
The utility's large base of 1.4 million customers provides a diverse and stable revenue stream.
The stable outlook reflects our assessment of base rate adjustments and the variable cost pass-through mechanism's capacity to partially address cost pressures. However, the utility projects that substantial additional debt and fixed contractual commitments needed to meet generation and system capital needs will continue to erode historically strong financial margins to levels that in our view are only adequate for the rating. If financial pressures increase, the ratings could suffer if LADWP does not provide timely responses that preserve financial margins.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
Edward Sweeney, New York (1) 212-438-6634, [email protected]
Analyst Contacts:
Peter V Murphy, New York (1) 212-438-2065
David Bodek, New York (1) 212-438-796