KBRA Assigns AA Rating, Stable Outlook to LA Department of Water and Power Water System Revenue Bonds, 2026 Series B
NEW YORK, October 19, 2026--KBRA assigns a long-term rating of AA to the Department of Water and Power of the City of Los Angeles (LADWP or the Department) Water System Revenue Bonds, 2026 Series B. The Outlook is Stable.
Proceeds of the 2026 Series B Bonds (up to $493.5 million) will refund all or a portion of outstanding 2017 Series A Water System Revenue Bonds, and pay related costs of issuance. Water System Revenue Bonds, including the 2026 Series B Bonds, and other parity indebtedness are secured by the Water Revenue Fund. As of October 1, 2026, the 2026 Series B Bonds are on parity with approximately $6.5 billion of Water System Revenue Bonds and revolving loans, $729.8 million of State Water Resources Control Board loans, and a $2.7 million loan from the California Department of Water Resources.
The long-term rating reflects the Water System's stable operating and financial performance. LADWP is the nation's largest municipal utility providing exclusive water and electric utility services to the City of Los Angeles (the "City"). LADWP's Water System provides service to an expansive, broad, and diversified customer base of approximately 1.6 million customers. Credit positives include the conservative, governing Board adopted financial planning criteria and full rate-setting authority which supports consistently strong liquidity, sound debt service coverage, and elevated but manageable leverage. Counterbalancing these strengths is the need for ongoing increases in elevated water rates and substantial additional indebtedness over the near to medium term, as the Department addresses considerable Water System requirements, including compliance with EPA Safe Drinking Water mandates and the implementation of a $10.1 billion FY 2027 - FY 2031 Water System capital plan (approximately 27% funded from rates).
Additionally, contingent liability risks related to the January 2025 Palisades wildfire and potential future wildfires, and the strict liability standards imposed by California's inverse condemnation law remain a critical and evolving concern. Potential adverse litigation outcomes relating to the 2025 wildfires or to future wildfires which pressure the Department's ability to meet the related liability exposure would likely have a negative impact on the rating. Management reports the wildfire affected areas of LADWP's service territory account for approximately 1.1% of the Department's Water System customers and 1.2% of annual Water System sales revenues.