NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a AA+ rating with a stable outlook to the City of Los Angeles, CA Series 2015-A, B, C, & D Senior Lien Wastewater System Revenue Bonds and a AA rating with a stable outlook to the Series 2015-A Subordinate Lien Wastewater System Revenue Bonds. These ratings apply to the City’s outstanding Senior and Subordinate Wastewater System Revenue Bonds. After the issuance of the Series 2015 Bonds the City expects to have approximately $1.33 billion of senior lien and $1.33 billion of subordinate lien Wastewater Revenue Bonds outstanding. The ratings are based on KBRA’s U.S. Municipal Water and Sewer Revenue Rating Methodology, published on February 20, 2014.
The Wastewater System is responsible for operating and maintaining one of the world’s largest wastewater collection and treatment systems and serves more than four million customers. In KBRA’s view, management has shown a commitment to appropriate rate setting that address operational and capital needs, which KBRA views as favorable. The rating also reflects KBRA’s view that the legal mechanics and security provisions set forth within the general resolutions provides strong levels of bondholder protection.
The System’s sizable customer base is diverse and largely made up of residential users. The top 10 customers of the System generated about 6% of the sewer service charge revenues in FY 2013.
Debt service coverage on senior lien bonds in FY 2014 was 3.20x and has historically been very strong at over 2.40x. Combined debt service coverage on senior, subordinate, and commercial paper, was 1.64x in FY 2014 and has ranged from 1.43x to 1.66x between FY 2010 and FY 2014. The System projects 2.60x coverage on all senior lien bonds and over 1.38x coverage on a combined basis through FY 2019.
The system has high leverage ratios that will likely remain at elevated as the System issues additional debt to fund its sizable capital improvement plan. KBRA notes that the City has already implemented a series of rate increases through FY 2021. It is KBRA’s view that the current rate levels allow for adequate additional rate flexibility.
The stable outlook reflects KBRA’s view that debt service coverage levels at both the senior and subordinate lien bonds will continue to exceed coverage requirements set forth within the general resolutions. It also reflects KBRA’s view that the System management will continue to successfully manage the challenges resulting from the sustained drought conditions and that annual rate increase, which has already been approved through FY 2021, will enable the System to adequately manage the additional capital expenses related to its sizable capital improvement plan.
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