LOS ANGELES — Los Angeles County received an improved outlook and affirmation of its A1 rating on $1.6 billion of outstanding debt ahead of plans to refund $205 million in lease revenue bonds on Aug. 12.
The lease revenue refunding bonds will be issued in two series: a $120 million 2015 Series B tax-exempt tranche and $85 million 2015 Series C federally taxable tranche.
The bonds, which refund outstanding parity debt, are expected to generate approximately $20 million in present value savings, according to Moody's.
The outlook was raised to positive from stable reflecting "the county's improved financial operations supported by healthy reserve levels, the continued decline in general fund subsidies to the department of health services and management's on-going progress of addressing its OPEB and unfunded pension liabilities," Moody's wrote in the July 31 report.
The county holds an Aa2 issuer rating from Moody's that applies to its general obligation bonds. Moody's typically rates lease revenue bonds two notches below general obligation bonds in California.
"The two notch distinction with the county's issuer rating represents the weaker security pledge for lease-backed obligations and the additional risk to bondholders from the county's financial, operational, and economic conditions over the more secure assumed general obligation pledge of the issuer rating," analysts wrote.
The Aa2 issuer rating, which is equivalent to a general obligation unlimited tax rating, "reflects the county's massive tax base and strong economy, sound financial position supported by healthy reserve levels, strong management team and low debt burden," Moody's wrote.
The county's unfunded pension and Other Post Retirement Benefits liabilities while long term, were deemed manageable, risks for the county, Moody's wrote.
Security for the lease payments is a contractual pledge of the county of all of its available financial resources, subject to abatement of the leased property, effectively on parity with other unsecured obligations. Unlike some earlier county lease obligations, the lease does not provide the Authority with the right to re-enter or re-let the leased property in the event of a county payment default.
"While this change represents a weakening of bondholder security, it does not materially alter our estimate of the probability of default or loss relative to the county's other A1 rated obligations," Moody's analysts wrote.
Los Angeles County has a $1.2 trillion tax base and a population of 10.1 million. The county's economy continues to improve and the unemployment has decreased over the prior year to 7.1% from 8.2%, Moody's wrote.
Security for the lease payments is a contractual pledge of the county of all of its available financial resources, subject to abatement of the leased property, effectively on parity with other unsecured obligations.
