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

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.

Methodologies

• Public Finance: U.S. Municipal Retail Utility Revenue Bond Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1004217

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