LADWP water revenue bonds win AA rating with stable outlook

Traders Union
All News
Financial Institutions
LADWP water bonds AA rating

Highlights

Kroll Bond Rating Agency assigned a long-term AA rating with Stable Outlook to LADWP's 2026 Series B Water Revenue Bonds, supporting up to $493.5 million in refinancing.
LADWP faces litigation over the January 2025 Palisades wildfire, with several hundred lawsuits pending, but maintains $319.6 million in insurance and $200 million in catastrophe bond coverage as mitigants.
LADWP's fiscal 2025 debt service coverage declined to 1.83x from 2.19x in 2024, but liquidity and board policy targets remain met, supporting a stable credit outlook.

Bond refinancing and rating rationale

As reported by Kroll Bond Rating Agency, the Department of Water and Power of the City of Los Angeles received a long-term AA rating for its Water System Revenue Bonds, 2026 Series B, with a Stable Outlook.

Proceeds from the bond sale, of up to $493.5 million, will refund all or a portion of outstanding 2017 Series A Water System Revenue Bonds and cover related issuance costs. The bonds are secured by the Water Revenue Fund and, as of October 1, 2026, stand on parity with about $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.

KBRA says the rating reflects stable operating and financial performance at LADWP's Water System, which serves about 1.6 million customers across Los Angeles. The agency cites board-adopted financial planning criteria, full rate-setting authority, strong liquidity and sound debt service coverage as key strengths, while noting pressure from rising water rates and the need for substantial additional borrowing to support a $10.1 billion capital plan for fiscal 2027 through fiscal 2031.

Wildfire liabilities and financial safeguards

Litigation tied to the January 2025 Palisades wildfire remains a central credit concern for the utility. Several hundred lawsuits have been filed against the City of Los Angeles, LADWP and other entities, and the Los Angeles Superior Court ruled on February 19, 2026, that plaintiffs may pursue inverse condemnation claims against the Water System.

The litigation is still at the pleading and consolidation stage, and LADWP says its ultimate financial exposure cannot yet be estimated. Management says the wildfire-affected areas account for about 1.1% of Water System customers and 1.2% of annual Water System sales revenue, while the Department and the city deny all liability claims.

KBRA says LADWP has several financial mitigants available, including $319.6 million for wildfire losses as of May 31, 2026, through commercial insurance, the Wildfire Self-Insurance Trust Fund and additional self-insurance. The utility also has $200 million of wildfire coverage through catastrophe bonds, alongside access to internal and external liquidity, bonding capacity and the potential to recover judgment or settlement costs through rate adjustment factors.

Debt service coverage remains above board policy targets but has weakened from the prior year. Net revenues available for debt service were $798.9 million in fiscal 2025, producing debt service coverage of 1.83x, down from 2.19x in fiscal 2024, while board policies for at least 150 days of operating cash and a debt-to-capitalization ratio below 65% were met in fiscal 2025.

The Stable Outlook reflects KBRA's view that rate adjustments, liquidity and other financial safeguards should help the Department maintain adequate debt service coverage and stable credit metrics as it manages possible wildfire costs, complies with EPA mandates, replaces aging infrastructure and expands local water supplies.

In our earlier coverage of S&P Global Ratings’ warning on sovereign resilience, we explained how persistent geopolitical shocks and elevated public spending can worsen refinancing risk in a higher-rate environment. The piece highlighted that as funding costs stay high, repeated inflationary pressures and larger rollover needs can squeeze fiscal headroom—especially in emerging and frontier markets with heavier interest burdens and narrower revenue bases.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.