LOS ANGELES — The Los Angeles Department of Water and Power plans to price $500 million in power revenue bonds next month.
The January deal is the first installment in $4.5 billion in bond sales planned over a five-year period.
RBC Capital Markets is senior book-running manager.
Cabrera Capital Markets, Fidelity Capital Markets, Goldman Sachs & Co., Morgan Stanley & Co., Siebert Cisneros Shank & Co., are co-managers. Public Resources Advisory Group is the financial advisor and Orrick, Herrington & Sutcliffe LLP is bond and disclosure counsel.
LADWP expects all-in costs in the low 4% range on the bond sale with retail sales planned for Jan. 18 and institutional pricing on Jan. 19, said Amanda Parsons, an LADWP spokeswoman.
The nation's largest power municipal utility plans to issue between $800 million to $900 million in power system bonds annually from 2017 through 2021 funding projects anticipated to cost $1.4 billion to $1.6 billion annually, according to LADWP data.
The $8 billion in power projects planned through 2021 will expand reliance on more environmentally friendly power sources and increase reliability, Parsons said.
The board-approved power system financial metrics require that the debt-to-total capitalization ratio cannot exceed 68%, and as of June 30, it is approximately 62%, Parsons said.
Ratings analysts expressed confidence that increased revenues from a 3.86% average annual power rate increase approved by the mayor and City Council in March will enable the municipal utility to manage debt payments and cash flow in the midst of this massive capital program. The power rate increase was expected to generate about $720 million over the next five years and followed a water rate hike passed by the board in December 2015.
LADWP has $8.38 billion in outstanding debt on the power side and $4.84 billion for its water enterprise.
Fitch Ratings affirmed its AA-minus rating and positive outlook on LADWP's power revenue bonds Dec. 19.
Moody's Investors Service affirmed an Aa2 rating with a stable outlook in its Dec. 20 report released ahead of the sale.
The proceeds will be used to finance a portion of the power system's renewable portfolio standard, infrastructure improvements, repowering of the in-basin power plants, and reliability program, Parsons said.
Additional planned debt issuance at LADWP and off-balance sheet obligations to finance the Intermountain Power Project repowering will continue to pressure LADWP's adjusted leverage ratios, but the capital plan has a robust pay-as-you-go component with 44% of expenditures supported by cash-flow, Fitch analysts wrote.
In June, LADWP divested its 21% ownership interest in the coal-fired Navajo Generating Station and by 2026 coal will not be a part of LADWP's energy mix.
The agreement to sell LADWP's share in the Arizona-based generating station will reduce the city's greenhouse gas emissions by the equivalent of 1 million cars over the next three and one-half years, the mayor's office said at the time.
The city sold its share of Navajo four years ahead of a state mandate to reduce the risk to ratepayers of a costly exit from the plant in the future. The sale of Navajo leaves LADWP with just one coal-fired power plant, Utah-based Intermountain Power Plant.
