LOS ANGELES -- Los Angeles County lease-revenue bonds and certificates of appreciation received a one-notch Moody's Investors Service upgrade to Aa3.
The upgrades, reducing the distance between the county's Aa2 issuer rating and the rated revenue bonds and COPs, stem from methodology changes that Moody's made in July to the way it rates lease-backed obligations, annual appropriation obligations and moral obligations issued by state and local governments.
The Aa3 ratings are now one notch lower than the county's Aa2 Issuer Rating. The outlook on the upgraded ratings Is positive, reflecting the positive outlook on L.A. County's issuer rating.
Moody's upgraded to Aa3 from A1 lease revenue bond Series 2005, 2010A, 2010B, 2012, 2015A, 2015B, 2015C and 2016D. Analysts also upgraded to Aa3 from A2 lease revenue bonds Series 2011A and 2014A and Certificates of Participation Series 1999, 2000, 2001.
"The one notch difference between the county's issuer rating and lease-backed obligation ratings reflects the standard legal structure for these California abatement lease financings and 'more essential' leased assets," according to the Moody's report. "These leased assets include the county's hospitals, libraries and social service buildings, to name a few. The notching also reflects certain strong legal features of California general obligation bonds that are not shared by lease-backed obligations."
The lease revenue bonds under the master lease established in are unlike some earlier county lease obligations, as the master lease does not provide the creditor with the right to re-enter or re-let the leased property in the event of a county payment default. This limitation results in a relatively weaker security. But given the county's overall credit quality, this relative weakness is not sufficient at this time to warrant a rating distinction, Moody's said.
Similarly, the county's COPs Series 1999, 2000 and 2001 have the same security provisions as those of the county's other capital leases, except that the creditor does not have recourse to an asset in the event of non-payment. Like the master lease obligations, this relative weakness does not by itself warrant a rating distinction at this time, according to Moody's.