Rating of AA assigned, with a steady outlook, to the water system revenue bonds of the Los Angeles Department of Water and Power, by KBRA.
LADWP Water System Maintains Stable Credit Outlook Amid Wildfire-Related Challenges
The Department of Water and Power (LADWP) of the City of Los Angeles has received a stable credit outlook for its Water System Revenue Bonds, 2025 Series A and 2025 Series B. Kroll Bond Rating Agency (KBRA) has assigned a long-term rating of AA to these bonds.
The document ID for this rating action is 1010578. The rating Outlook on all Water System debt is Stable.
The stable credit outlook is despite challenges from wildfire-related inverse condemnation claims linked to the January 2025 Los Angeles wildfires. These claims, alongside rising insurance costs, are expected to require increased water rates to cover associated expenses.
Key credit considerations include water rates, system leverage and debt coverage, liquidity, capital spending, and the financial separation of LADWP's water and power systems.
LADWP has full rate-setting authority and will likely need to raise rates to meet costs stemming from wildfire liabilities and increased insurance premiums. As of August 2025, about $5.79 billion in Water System Revenue Bonds were outstanding. The water system’s debt service coverage (DSC) in FY 2024 was 2.19x, exceeding the internal board target minimum of 1.70x DSC. However, DSC is projected to decline through FY 2030 due to the implementation of a $7.74 billion Water System Capital Plan.
The water system maintains a policy of at least 150 days of operating cash. The 2025 Series A and B Bonds are not backed by a debt service reserve fund, which can increase liquidity risk but appears manageable under current conditions.
The $7.74 billion capital plan is significant, with roughly two-thirds expected to be funded via water system revenue bonds and parity obligations. This large capital program will increase leverage and put pressure on future financial metrics but is integral for system maintenance and upgrades.
Kroll Bond Rating Agency (KBRA) is one of the major credit rating agencies registered with the U.S. Securities and Exchange Commission as an NRSRO. KBRA is 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 in the U.S.
Linda Vanderperre, Managing Director, served as the lead analyst for the credit rating. Lina Santoro and Douglas Kilcommons, both Managing Directors, were also involved in the rating process. The rating action was published by Business Wire.
Information on the methodologies, disclosures, and rating categories used in the credit rating is available on KBRA's website. KBRA is designated as a DRO by the Ontario Securities Commission for issuers of asset-backed securities. Contact information for analytical and business development contacts at KBRA is provided.
The Water System Revenue Bonds are secured by the Water Revenue Fund. The bonds do not have a debt service reserve fund, which can increase liquidity risk but appears manageable under current conditions. Close monitoring of DSC and liquidity will be important given these evolving challenges.
[1] Kroll Bond Rating Agency. (2025). LADWP Water System Revenue Bonds, 2025 Series A and 2025 Series B. Rating Report. [2] Business Wire. (2025). Kroll Bond Rating Agency Assigns AA Rating to LADWP's Water System Revenue Bonds, 2025 Series A and 2025 Series B. Press Release.
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