Moody's Ratings downgraded 13 Los Angeles-related credits, including the city itself and its Department of Water and Power, citing the risk from lawsuits related to last year's Palisades fire.
Tuesday's downgrades follow
"While any potential liability is unknown, the litigation is proceeding after recent court orders unfavorable to the city; and the outcome is not expected for some time," Moody's analyst Lori Trevino wrote in the report. "Any liabilities on the part of LADWP could affect the city generally and its other municipal utilities, given their shared ratepayers and taxpayers."
The outlooks on all credits were revised to stable from negative.
The rating agency also cited the city's
Moody's cut the city's issuer rating, general obligation bonds, senior wastewater revenue bonds and solid waste resource bonds to Aa3 from Aa2 and lease obligation bonds were downgraded to A1 from Aa3 and to A2 from A1 depending on asset essentiality.
Moody's assigned an A1 rating to the $216.1 million in Municipal Improvement Corporation of Los Angeles lease revenue bonds the city plans to price Tuesday. The downgrades affect about $5 billion of city debt after the MICLA deal prices, the rating agency said.
The downgrade of the city's issuer rating "reflects the weakening of the
Moody's lowered LADWP's power system revenue bond rating to Aa3 from Aa2 and its water system revenue bonds to Aa3 from Aa2. The downgrades affected $12.8 billion in outstanding debt on the power side and $6 billion on the water side.
Moody's also downgraded the ratings on six Southern California Public Power Authority projects' revenue bonds to Aa3 from Aa2. The downgrades applied to the Southern Transmission System Renewal Project, the APEX Power Project, Windy-Point/Windy Flats Project, Milford Wind Corridor Phase 2 Project, Mead-Phoenix Project, Mead-Adelanto Project. LADWP accounts for 100% of revenues in five of the six projects, and 90.5% of revenues in the southern transmission project, Moody's said.
The bonds for the Intermountain Power Agency, Utah, of which the LADWP is the largest project participant, were affirmed at Aa3 and the outlook revised to stable from negative.
Judge Jessner also ruled that LADWP could be sued for causing secondary fires that extended the blaze's timeline. Jonathan Rinderknecht, 29, was indicted on three felony counts in October alleging he was responsible for starting the wildfire.
The blaze was driven by hurricane-force winds over parched terrain that had not seen significant rain for months.
The wastewater bond downgrade reflects rising leverage, and despite solid debt service coverage and liquidity, the enterprise's ties to the city's general credit, Trevino wrote.
The LADWP's power system downgrade "reflects its growing capital improvement program, which is expected to add meaningful debt over the next five to ten years, along with substantial contingent liabilities associated with the Palisades Fire," wrote William Oh, Moody's lead analyst on that credit. The rating downgrade also incorporates substantial rate increases anticipated to cover the capital program and contingent liabilities from the fire, Oh wrote.
