Los Angeles DWP pricing gains traction after wildfire

Los Angeles Department of Water and Power

A year after deadly wildfires had an immediate negative credit and trading impact on the Los Angeles Department of Water and Power, investors are showing confidence in the utility.

It sold $772.3 million of power revenue bonds last week after lead managers Siebert Williams Shank and BofA Securities upsized the deal by $228 million.

That came after the bonds garnered $1 billion in orders from 40 investors, including $85 million in retail orders, according to Siebert bankers Grace Yuen, managing director and head of the West Region and Drew Gurley, managing director.

Issuers often price debt at the beginning of the year hoping for the January effect, where bond prices rise and yields fall driven by heavy reinvestment of year-end cash, portfolio rebalancing and a seasonal lack of new bond supply.

"We did see a rally in the market and the MMD (the Municipal Market Data curve) did outperform treasuries," Gurley said.

The so-called January effect can be dampened by heady supply, but Gurley said the roughly $10.8 billion priced last week wasn't close to some of the highs in the $18 billion to $20 billion range the market hit last year. And the LADWP deal benefited from being, by far, the largest California sale in the market, he said.

As the bankers prepped the deal, they noticed the DWP power credit had been tightening in the secondary market, Gurley said. The deal stayed the course when the market experienced a shock after President Donald Trump threatened tariffs against eight European countries for not backing his plans to acquire or occupy Greenland.

Timing also helped as weakness in the muni market on Tuesday had largely dissipated by Wednesday's close and didn't lessen interest in the deal's retail order period, Gurley said. By Thursday the market bounced back with Treasuries experiencing gains and equities up.

Spreads on DWP's power revenue bonds tightened even further then RBC's pricing of $977.6 million in water revenue bonds for the utility in October.

"Our spreads were a good deal tighter than the last transaction," Gurley said. "In the five-year maturities, they were 52 over MMD in October. We finished at 20 over MMD on our transaction. It's come in quite a bit."

In general, however, Gurley said yields through the 10-year maturities have come down and spreads have tightened because separately-managed accounts have been focusing on 10-years.

This is a stark contrast from the investor outlook on the bonds after the January 2025 Palisades wildfire decimated a 36 square mile stretch on the city's west-side destroying more than 6,800 structures and killing 12 people at the same time the Eaton fire, outside L.A. city limits, ravaged the community of Altadena.

LADWP's spreads had widened 50 to 60 basis points to the MMD in January 2025, though they had tightened by 30 basis points leading up to October's water revenue deal, Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, told The Bond Buyer in October.

DWP received negative outlooks and ratings downgrades after the 2025 wildfires. 

Ratings appeared to be less of a concern this time out for investors, as the rating agencies affirmed existing ratings ahead of the deal, Yuen said.

Fitch Ratings on Oct. 23 revised its outlook for DWP power and water credits to stable from negative, and affirmed them both at AA-minus. That change likely brought more discussion on ratings when the water bonds priced, Yuen said.

Ahead of the deal, Moody's Ratings affirmed an Aa2 rating and KBRA affirmed an AA rating. Moody's assigns a negative outlook, while KBRA's is stable.

Moody's analysts said in the report they could "stabilize the outlook if the financial impact of the wildfires is largely mitigated through regulatory, legislative, or judicial action, or if the power system is able to address potential liabilities without materially damaging its operating results and debt metrics."