KBRA assigns the long-term rating of AA+ with a Stable Outlook to the Department of Water and Power of the City of Los Angeles (LADWP) Water System Revenue Bonds, 2024 Series A.

Concurrently, KBRA affirms the long-term AA+ rating and Stable Outlook on the Department's outstanding Water System Revenue Bonds.

Key Credit Considerations

The rating was assigned because of the following key credit considerations

Credit Positives

• Established water system serving one of the largest metropolitan areas in the United States, with a primarily residential customer base and low commercial and industrial rate payer concentration.
• Rate structure incorporates several pass-through adjustments that effectively decouple revenue generation from changes in customer demand.
• Water rates remain competitive and affordable, despite having increased annually since 2018 at a compound annual growth rate of 5.2%.

Credit Challenges

• Existing leverage is high, and further growth is expected with the implementation of the ambitious 2024-2028 Water System CIP, which focuses on enhancing local water supply.
• The Department’s ability to implement water rate increases may be constrained by Proposition 218.
• Legal provisions provide for a sum-sufficient rate covenant. However, the Board has directed LADWP to set water rates sufficient to achieve a minimum 1.70x DSC, and coverage has consistently exceeded this threshold in recent years.

Rating Sensitivities

For Upgrade

• Sustained reduction in Water System leverage and stronger DSC.
• Favorable progress in addressing infrastructure needs of the Water System.

For Downgrade

• Sustained decline in DSC or liquidity.
• Deterioration of economic conditions in the service area leading to reduced rate-setting flexibility

To access rating and relevant documents, click here.

Methodologies

Public Finance: U.S. Municipal Retail Utility Revenue Bond Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Only those ratings on securities issued by this Issuer that also are denoted on the Security Ratings tab for this Issuer on KBRA.com as “endorsed” by Kroll Bond Rating Agency Europe Limited into the European Union and/or by Kroll Bond Rating Agency UK Limited into the UK are covered by the disclosures set forth in this press release and the corresponding Information Disclosure Form. No other ratings on issuances by this Issuer have been endorsed into the European Union or the UK, and the disclosures set forth herein and in the corresponding Information Disclosure Form are inapplicable to those ratings and may not be used for regulatory purposes by European Union or UK investors in these securities.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1002910

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