The Long Island Power Authority received its first credit upgrade in 11 years.
Moody's Investors Service cited improved cash flow from new rate increases as a major factor in raising the utility's bonds one notch late Friday.
Moody's upgraded LIPA's senior lien revenue bonds to A3 from Baa1 and its subordinated lien revenue bonds to Baa1 from Baa2. Moody's analyst Scott Solomon said a three-year rate plan implemented on Jan. 1 that calls for modest increases played a large role in LIPA's improved credit profile. Solomon noted that the three-year rate plan calls for a revenue decoupling mechanism and a delivery service adjustment that provides LIPA with automatic cost recovery in the case of revenue variations that may occur from changing economic conditions or higher-than-budgeted storm costs.
"The upgrades reflect the implementation of enhancements to LIPA's cost recovery mechanisms that result in a more stable and predictable cash flow and a more resilient liquidity profile," said Solomon in his report. "Other considerations that factored into the one-notch upgrade include improvements in LIPA's operating performance, better customer satisfaction levels, more transparent and credit supportive regulatory relationships and an expectation for better financial performance on a sustained basis."
LIPA was last upgraded in January 2005 when Moody's raised its rating one notch to A3 from Baa1. S&P Global Ratings and Fitch Ratings rate LIPA's debt at A-minus.
Solomon added that LIPA also is benefiting from a recent Federal Emergency Management Association grant. He said the federal funds combined with internal generated cash flow sources and incremental debt will fund a capital investment program focused on storm hardening and enhancing system reliability.
"Because of the existence of the FEMA funds, currently held in a restricted cash account, the debt ratio is expected to continue its declining trend even while incremental debt is incurred to fund the capital investment program," said Solomon.
LIPA is planning a September sale of $350 million in fixed rate tax-exempt bonds, according to an issuance calendar released in July by New York State Comptroller Thomas DiNapoli. The utility, whose operations were taken over by PSEG Long Island in 2014, is in the process of restructuring $4.5 billion of debt through its Utility Debt Securitization Authority.
