Long Island Power Authority bonds recently received strong credit ratings from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.
Fitch Ratings
On July 24, Fitch Ratings said that it assigned an “A” rating to LIPA bonds with a Positive Outlook. The Positive Outlook “reflects LIPA's improving leverage ratio and Fitch's expectation that the gradual but consistent deleveraging trend that began in 2015 will continue through 2027,” Fitch said.
Leverage, measured by net adjusted debt-to-adjusted funds available for debt service, improved to 8.1x at YE 2022 from 8.8x four years prior, Fitch noted. The improvement is attributable, in part, to LIPA's strategy of budgeting to achieve higher fixed obligation coverage, it said.
Going forward, leverage ratios are expected to trend below 8.0x in 2023/2024, consistent with a higher rating, as performance continues to benefit from LIPA's revenue-decoupling mechanism (RDM), as well as modest but consistent rate increases designed to achieve higher fixed charge coverage, the rating agency said.
“LIPA's very strong service area, more disciplined approach to rate setting and authorized RDM should sustain its very strong revenue defensibility and overall performance even through periods of stress, further supporting its financial profile,” Fitch said.
Moody’s Investors Service
For its part, Moody’s on July 20 said it assigned an A2 rating to LIPA’s debt with a stable outlook.
“With median household incomes and per capita metrics well above the national average, the service area economy continues to be a positive factor underpinning LIPA's credit profile,” Moody’s said.
Other positive credit factors include a suite of cost recovery mechanisms that support a stable and predictable cash flow profile and the utility's meaningful size and scale, the rating agency noted.
“These considerations serve to provide a high degree of consistency to the utility's annual cash flow as demonstrated by a fixed charge coverage ratio that has consistently been in the 1.20-1.30x range, Moody’s said.
The stable outlook reflects LIPA's strong liquidity profile that is expected to remain in excess of $1 billion, Moody’ said. LIPA's available cash as of December 31, 2022 was approximately $1.7 billion.
S&P Global Ratings
Meanwhile, S&P Global Ratings assigned its “A” rating to LIPA’s bonds.
Fixed cost coverage, which averaged 1.22x over the past three years, is supportive of the current rating, S&P said. Based on LIPA's financial forecast, S&P calculates fixed cost coverage of 1.2x-1.3x over the next five years.
“Liquidity is sound, with unrestricted cash (net of collateral holdings) and undrawn capacity on credit lines measuring 145 days of operating expenses in 2022.”
The outlook is stable, which reflects credit-supportive pass-through mechanisms that have promoted cost recovery across economic cycles, helping LIPA to maintain consistent fixed cost coverage and liquidity metrics, S&P said.
The outlook is also supported by strong income levels, which suggest modest rate-raising flexibility despite already high rates, the rating agency added.
