KBRA Assigns AA Rating, Stable Outlook to the Department of Water and Power of the City of Los Angeles Power System Revenue Bonds, 2025 Series D

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AA to the Department of Water and Power of the City of Los Angeles Power System Revenue Bonds, 2025 Series D. Concurrently, KBRA affirms the AA rating on outstanding parity Power System Revenue Bonds. The Outlook is Stable.

Key Credit Considerations

The rating action reflects the following key credit considerations:

Credit Positives

• Diverse generation mix provides ample net dependable capacity versus peak demand and minimizes exposure to energy cost volatility.
• Current electricity rates, while well above the national average, remain affordable relative to other California utilities, allowing a degree of rate flexibility.
• The rate structure incorporates several pass-through adjustments that effectively decouple revenue generation from changes in customer demand.
• Sound liquidity helps to offset enterprise risks.

Credit Challenges

• Wildfire liability risk, influenced by the State’s doctrine of inverse condemnation and its unique strict liability standard, is a persistent threat that is likely to become increasingly costly to hedge against.
• LADWP’s ability to maintain rate affordability and strong financial metrics while addressing potential wildfire liabilities and capital-intensive energy transition mandates is an evolving credit challenge.
• KBRA-calculated leverage is very high and expected to grow, given the ambitious, largely bond-funded Power System 2026-2030 CIP.

Rating Sensitivities

For Upgrade

• Demonstrated progress in attaining mandated energy transition targets with minimal adverse rate impact.

For Downgrade

• Potential adverse litigation outcomes relating to the 2025 wildfire or to future wildfires which pressure the Department’s ability to meet the related liability.
• Inadequate or delayed rate recovery that causes a decline in debt service coverage to a level approaching Board-adopted targets.

To access ratings and relevant documents, click here.

Methodologies

• Public Finance: U.S. Municipal Retail Utility Revenue Bond Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1013047