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Fitch Rates Pasadena’s Electric System Revenue Bonds ‘AA,’ Outlook Stable

Published on Monday, October 24, 2016 | 4:47 pm
 

Fitch Ratings has assigned a AA rating to approximately $120 million in electric revenue refunding bonds issued by the City of Pasadena on behalf of Pasadena Water and Power.

The rating is a step below AAA, which characterizes bonds with virtually no chance of a default. AA describes quality companies although presenting a bit higher risk than AAA.

Proceeds from the PWP bonds will be used to fund approximately $30 million of the system’s capital needs, refund an estimated $47 million in outstanding 2008 bonds for savings, refinance a $60 million line of credit and pay costs of issuance. Bonds are expected to price via competitive sale on November 7, 2016.

In addition, Fitch has also affirmed its ‘AA’ rating on PWP’s outstanding parity bonds: its $186.9 million electric revenue pre-refunding bonds. The rating outlook means the bond is stable, secured by a first lien on net revenues of the Pasadena electric system.

Fitch took note of the PWP’s serving a mature service area, its strong financial performance, the utility’s adaptive rate structure, the capacity to adapt to required power supply conversion, its limited capital and low debt, and increasing transfers to the City’s general fund as key drivers for the favorable rating.

PWP provides retail electric service to 65,318 customers within the city of Pasadena. The service area is located within the greater Los Angeles region and exhibits strong economic indicators and ongoing in-fill development.

Fitch also noted that PWP should maintain strong financial margins and liquidity especially between 2018 and 2022 in order to keep its rating at a comfortable level. During that period, debt servicing and transfer to the city’s general fund are expected to increase, impacting the utility’s financial balance.

The majority of PWP’s energy sales are derived from residential, and commercial and industrial customers, which account for 30 percent and 69 percent, respectively.

Historical energy sales exhibit an average annual decline over the past five years of 1 percent as a result of industry advances in energy efficiency and Pasadena’s own programs that promote conservation.

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