NEW YORK - Moody's Investors Service said it has assigned Aa3 ratings to the Los Angeles Department of Water and Power's water system revenue bonds, 2009 Series B and C, the latter of which are structured as direct payment Build America Bonds, and affirmed the Aa3 ratings on the department's outstanding parity debt.
The outlook for the Aa3 rating has been revised to positive from stable, reflecting the likely material improvement in the water enterprise's operating cash reserves in the next few years.
In May, the city revised its operating reserve target from only $50 million to $200 million, a level which it now projects meeting in fiscal 2012, if not 2011. The water enterprise's cash and financial reserve position has typically been below average compared to other large, highly-rated water enterprises and this new policy should bring it closer to the average.
The Aa3 rating continues to positively reflect the department's exceptionally large, stable, and highly diverse, citywide customer base; a moderately favorable water supply picture compared to many large California water enterprises; and financial operations that are healthy overall.
The rating also significantly reflects the department's very large capital improvement needs, which will require substantial additional borrowing. The department's carefully-designed rate structure, which has a number of significant, automatic rate adjustments, is an additional credit positive.
The department's water revenue bonds are secured by its pledge of gross revenues from its water enterprise, on parity with the department's operations and maintenance expenses. Bond proceeds will be used to fund a portion of the enterprise's capital improvement plan.
