Los Angeles solid waste bonds keep AA rating with stable outlook
Rate adjustments for Los Angeles' solid waste system are central to the latest credit assessment of the city's revenue bonds. KBRA says the current outlook assumes those changes improve debt service coverage and gradually reduce reliance on General Fund subsidies.
Highlights
- KBRA affirms AA rating with Stable Outlook on City of Los Angeles Solid Waste Resources Revenue Bonds, citing strong debt service coverage from pledged fees and small supporting sources.
- Recently implemented fee adjustments are expected to reduce, and potentially eliminate, the Solid Waste Resources Revenue Fund's historical reliance on annual General Fund subsidies.
- Future rating upgrades depend on a proven record of consistent fee adjustments and program self-sufficiency, while downgrades could result from weakened fee levels or reduced support willingness.
Credit view tied to fee adjustments
As reported by KBRA, the long-term rating on the City of Los Angeles, California Solid Waste Resources Revenue Bonds remains at AA with a Stable Outlook, reflecting expectations that pledged Solid Waste Resources fees and other smaller sources continue to provide strong debt service coverage.The rating agency says recently implemented rate adjustments are expected to reduce and eventually eliminate the Solid Waste Resources Revenue Fund's dependence on annual General Fund support. It also highlights the legal structure behind the bonds, citing a clearly defined gross revenue pledge and bondholder protections.
KBRA adds that the fees support an essential government service delivered across a large and stable economic base. At the same time, it notes the revenue fund has not been consistently self-supporting because fee increases were historically infrequent, leading to meaningful reliance on General Fund subsidies.
Future rating moves depend on self-sufficiency
KBRA says an upgrade would require a proven record of timely and consistent fee adjustments beyond the current five-year ordinance, along with evidence that the solid waste program can remain self-sufficient without General Fund backing.A downgrade could follow if Solid Waste Resources fee levels decline enough to materially weaken gross debt service coverage. The agency also says lower willingness from management and the City Council to provide General Fund support, if needed to maintain fund solvency, would pressure the rating.
Our earlier coverage on KBRA’s surveillance review of Olympic Tower 2017-OT noted that the agency affirmed all outstanding ratings after improved leasing activity strengthened operating performance. We highlighted that occupancy rose to 98.9% and in-trust KLTV improved versus the prior review, but the changes were still not significant enough to warrant any rating actions.
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