The Los Angeles Department of Water and Power's water revenue bond outlook was revised to negative from stable by Fitch Ratings ahead of a planned June 3 pricing of $213.2 million bonds.
Fitch affirmed its AA rating of the parity water revenue debt and assigned that rating to the series 2020 A bonds.
“The negative outlook is driven by fiscal 2019 leverage, as measured by net adjusted debt to adjusted funds available for debt service (FADS), that increased to 10.1 times from 9.7 times in fiscal 2018, while prior expectations were that leverage would decrease in fiscal 2019 and continue a gradual decline in upcoming years,” Fitch analysts wrote in Wednesday's report.
Fitch expects leverage to remain between 9 times and 10 times over the intermediate term, which would more closely align with the lower end of the AA category.
The bond proceeds will provide funds for capital improvements to the water system, refund a portion of the outstanding series 2010A bonds, prepay outstanding state loans, and pay certain costs of issuance, according to Fitch.
Fitch has also affirmed the AA rating on $5.2 billion water system revenue bonds (prior to refunding); $325 million in bank bonds corresponding to the variable rate series 2001B-1, B-2, B-3, and B-4 bonds; and $229.8 million in bank bonds corresponding to the variable rate series 2019 A-1, A-2, and A-3 bonds.
The system’s standalone credit profile was assessed at 'aa'.
Fitch downgraded LADWP's power revenue bond rating to AA-minus from AA in early April.
Correction: Fitch assigned a negative outlook to LADWP's water revenue bonds. The original version of the story did not specify which LADWP bonds were subject to the new negative outlook.
