Fitch Rates LADWP's $940MM 2003 Series A Bonds 'AA-'
Source: Business Wire
LADWP is the largest municipal utility in the United States, providing electric and water requirements of the city of Los Angeles, which has a population of about 3.8 million people. LADWP's (the utility) strong credit rating reflects the utility's aggressive generation debt reduction program, very solid financial position, good customer mix and experienced management team. The Los Angeles city council's strong support for LADWP's successful financial restructuring is noted. Beginning in June 1997, LADWP has lowered generation-related debt (including the department's own revenue bonds and its share of bonds issued for the Intermountain Power Agency and the Southern California Public Power Authority) from $4.1 billion to $965 million (net of amounts in the Debt Reduction Fund). LADWP's Debt Reduction Fund now totals approximately $830 million. LADWP's strong balance sheet, ample cash flow to meet a large portion of capital needs, as well as plans to hold electric rates around current levels in the future, place the utility in a favorable financial position. Debt service coverage was over 4.00 times (x) in fiscal year 2002 (June 30). While coverage ratios will trend lower in subsequent years, to an estimated 2.75x in 2008, the level of bondholder protection remains quite substantial. Creation of a new risk management committee to oversee fuel and wholesale energy transactions should prove beneficial, longer term.
Credit risks center on an increased reliance on natural gas commodity exposure (LADWP added/upgraded gas-fired generation), an ongoing sizeable capital expenditure program related to improvements to existing generation and the utility's distribution system, and the possibility that the city council could decide to use a greater portion of LADWP monies to try and help other city agencies during this period of state-wide crisis. LADWP has been willing to increase the amount of utility transfers, but has stated that it recognizes the importance of maintaining a strong financial position. LADWP's exposure to Federal Energy Regulatory Commission (FERC) penalties relating to issues dealing with California's volatile electric market in 2000-2001 do not appear to be significant and management has set aside certain reserves for this purpose. Fitch previously prepared a stress analysis with FERC issues in mind, and even under fairly stressful conditions, LADWP's financial integrity remains solid.
Contact:
Fitch Ratings
Alan Spen, 212/908-0594
Lina Santoro, 212/908-0522, New York
Media Relations: James Jockle, 212/908-0547, New York
