The Long Island Power Authority's financial stability is expected to "gradually improve" in the years ahead, according to Janney Capital Markets.
LIPA received its first rating upgrade in 11 years this month from Moody's Investors Service, which shows it is getting "fully back-on-track" following operational losses suffered during Hurricane Sandy four years ago, Janney municipal analyst Alan Schankel wrote in a report Monday.
Schankel attributes the turnaround largely to the LIPA Reform Act of 2013, which led to PSEG Long Island taking over operations of the public utility. The legislation also paved the way for LIPA to refinance a portion of its $7.6 billion debt through the issuance of up the $4.5 billion bonds through its Utility Debt Securitization Authority.
"Since the new UDSA bonds were rated [triple-A], LIPA was able to lower interest cost on outstanding debt," said Schankel in his report. "Although debt load remains high as do rates charged to customers, we believe LIPA's financial prospects have improved post-Sandy, with the utility ben¬efitting from PSEG management, savings through debt refinancing, and a more predictable (for three years) rate structure providing some insulation from unpredictable external events."
Moody's upgraded LIPA's senior lien revenue bonds to A3 from Baa1 and its subordinated lien revenue bonds to Baa1 from Baa2 citing a three-year rate plan implemented on Jan. 1 that calls for modest increases. S&P Global Ratings and Fitch Ratings rate LIPA bonds at A-minus.
