Fitch boosts Los Angeles County rating ahead of note sale

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Los Angeles County received a one-notch upgrade of its issuer default rating to AA-plus by Fitch Ratings, affecting more than $2 billion in outstanding debt.

Fitch also upgraded the rating on the county's certificates of appreciation and lease revenue bonds to AA from AA-minus.

The upgrade “is especially gratifying given the complexity of the county’s finances and the number of economic variables outside of the control of county government,” Joseph Kelly, the county’s treasurer and tax collector, said in a statement.

Fitch's upgrade of the county's long-term underlying credit rating “reflects the combined strength of the county's continued solid revenue performance and prospects, strong economic underpinnings, moderately low long-term liability burden, and highest level of gap-closing capacity,” analysts wrote.

The upgrade came ahead of the county's plans to price $700 million in tax revenue anticipation notes this week. Bank of America Merrill Lynch and Morgan Stanley are lead managers.

Note proceeds will be used to smooth cash flow management for general fund operations during fiscal 2020.

Omnicorp is financial adviser and Hawkins Delafield & Wood is bond counsel.

The county holds general obligation bond ratings of Aa1 from Moody’s Investors Service and AA-plus from S&P Global Ratings.

County officials partly credited strong population growth, declining unemployment, improving wealth levels and a steady growth in consumer spending for the ratings.

The net assessed value of properties is $1.6 trillion, which represents a 5.8% increase from fiscal year 2018-19, according to the county.

The net direct debt burden is $2.4 billion, though overall debt from overlapping jurisdictions totals $39 billion, according to Fitch analysts, who wrote that level of debt is a moderately low burden on the county taxpayer’s resources. The $2.4 billion figure includes the county’s plans to issue $350 million of long-term lease revenue bonds in first quarter fiscal 2020 as take-out financing for commercial paper on completed construction projects.

Even with the county’s plans to sell roughly $1.6 billion in lease revenue bonds over the next several years, the long-term liability burden would remain moderate,” Fitch wrote.

The new debt would also include $425 million to help pay the $650 million cost of a new building at Los Angeles County Museum of Art and $883 million in fiscal 2024 for a new correctional treatment facility.

Kelly estimates that each increase in L.A. County’s long-term credit rating could reduce interest expense by up to $2 million for every $100 million borrowed on a long-term debt issuance.

“Our budget continues to strike a balance between programmatic priorities and fiscal responsibility," said Sachi Hamai, the county CEO.

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Ratings TRANs County of Los Angeles, CA California