Fitch Ratings on Monday revised the outlook to negative from stable on around $6 billion of the Long Island Power Authority's A-rated electric system revenue bonds.
The revision is based on the agency's view that the effects of Hurricane Sandy will "challenge LIPA's already tight financial flexibility and frustrate the authority's efforts to achieve improved financial performance and metrics as forecast."
The action follows a warning from Moody's Investors Service last week that storm costs could further weaken its A3 rating on LIPA's outstanding bonds.
Michael Taunton, chief financial officer and vice president of finance at LIPA, said that the authority has more than enough liquidity to cover the restoration costs.
LIPA's immediate liquidity includes over $500 million in cash reserves and $100 million available under its commercial paper program.
On Monday, Taunton said LIPA still had not determined a cost estimate, but he is hoping to have a number by the end of the week.
"The $64,000 question out there is about the [Federal Emergency Management Agency] reimbursement process," Taunton said. "That has not been clearly defined yet. How much is it going to be and what's the time period?"
LIPA expects to receive reimbursement from FEMA of at least 75% of eligible restoration costs. Inadequate or prolonged reimbursement, however, would be a concern, Fitch analysts said.
"We're disappointed in the reports," said Taunton. "But we do believe that the credit rating is extremely important and we are going to make every effort to maintain, if not improve, our credit rating."
With thousands of New York residents still lacking power in the weeks following Hurricane Sandy, LIPA has received widespread criticism of its response to the storm.
Gov. Andrew Cuomo said on Nov. 8 that LIPA's management had failed. A few days later, hundreds of residents protested outside a utility office in Hicksville, N.Y.
On Nov. 11, LIPA announced that it had restored power to 95% of the system, but that 62,000 outages still remained.
LIPA's service area includes more than 1.1 million customers in Nassau and Suffolk counties, and the Rockaway Peninsula in Queens.
"Future rating actions will depend on LIPA's ability to maintain adequate financial flexibility, in particular the ability and willingness to raise rates to achieve financial metrics consistent with the A rating category," said Fitch analysts.