A proposal in New York Gov. Andrew Cuomo's 2015 executive budget to allow the Long Island Power Authority to securitize an additional $2.5 billion of debt is a credit positive for the utility, according to Moody's Investors Service.
Cuomo's proposed bill enables LIPA, rated Baa1 with a stable outlook, to refinance a portion of its outstanding debt into more highly rated securities that contain lower interest costs. This would lower LIPA's overall debt costs and free up funds to spend on capital projects as well as potentially lowering the agency's rate increase proposed in its three-year plan, said Moody's analyst Laura Schumacher in a Jan. 29 report.
Schumacher also noted that Cuomo's proposal also signals that the state has a "more supportive view" of the utility going forward in comparison to the Democratic governor's harsh criticism in the aftermath of Hurricane Sandy in 2012.
In 2014, LIPA issued roughly $550 million of new money debt, which brought its year-end outstanding debt total to $10 billion, according to Moody's. This includes revenue bonds, short-term and securitization debt and capital leases.
LIPA's initial securitization in 2013 involved refinancing approximately $2 billion of debt from Utility Debt Securitization Authority Restructuring Bonds Series 2013T and 2013TE, rated Aaa with a stable outlook. This helped lower LIPA's debt costs since the Aaa securitization refinanced higher-cost LIPA senior revenue bonds rated Baa1, Schumacher noted.
"Although the initial securitization lowered LIPA's interest cost, its total annual interest expense has continued to rise, with budgeted amounts for 2015 exceeding 2013 levels by more than 8%," said Schumacher. "The increase is a result of LIPA incurring additional indebtedness primarily to pay for capital expenditures that improved reliability."
