(Bloomberg) — S&P Global Ratings on Tuesday lowered the rating on municipal bonds sold by Los Angeles Department of Water and Power, downgrading the utility’s power system bonds by two notches to A from AA-.
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The ratings company said that the rating on the power system bonds “face further and significant downward pressure” after the devastating wildfires in Los Angeles. S&P also lowered its rating on the utility’s water system revenue bonds by two notches to AA- from AA+. Prices on LADWP power bonds have already dropped in recent days as investors assess the damage posed by the fires.
“Although the utility’s infrastructure has so far not been implicated as the cause of the ongoing wildfires, the increasing frequency and severity of highly destructive wildfires within LADWP’s service territory and recent spread into more urban areas highlights the utility’s potential vulnerability to financial liability claims that could eclipse its liquidity and insurance coverage,” said S&P Global Ratings credit analyst Paul Dyson.
The ratings were also placed on CreditWatch with negative implications, an indication that further downgrades could be ahead.
S&P gave a “one-in-two chance” that it could further downgrade the power system’s bonds, potentially by multiple notches, over the next 90 days “if utility infrastructure is identified as the source of ignitions or if there is significant additional damage and customer dislocation.”
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