Search and rescue operations in Los Angles Wednesday within the wake of the Palisades Fire.
Bloomberg News
Fitch Rankings placed 4 credits — led by town of Los Angeles the Los Angeles Department of Water and Power — on rating watch negative, citing the region’s wildfires.
Fitch also placed two utilities tightly linked to LADWP, the Intermountain Power Agency in Utah and Southern California Public Power Authority, on negative watch.
The town holds an AA-plus issuer default rating from Fitch, and LADWP’s water revenue bonds are rated AA and the electrical revenue bonds are rated AA-minus. Each SCPPA’s and IPA’s bonds are rated AA-minus.
Early concerns and questions have been raised by the community and political leaders about utility infrastructure resiliency to fireside, sufficiency of accessible water supplies for fire suppression, utility protocols and communications ahead of and through red flag events, and ultimately the source of the ignition for the fires, Fitch said.
The town’s AA-rated general obligation bonds were placed on CreditWatch with negative implications by S&P Global Rankings late Wednesday. S&P had already downgraded LADWP Tuesday.
Kroll Bond Rating Agency put bonds issued by town and its Department of Water and Power on Watch Downgrade Thursday.
“The Palisades Fire, situated on the western fringe of town, is considered one of the most important with much destruction occurring throughout the city of Los Angeles and the water and power service of LADWP,” Fitch analysts wrote within the rankings report. “Resulting damage to utility infrastructure and the extent of property destruction and private injury to affected residents is just not yet known.”
The rating watch negative designation “indicates the rankings could stay at their current levels, but have a heightened probability of a downward rating change,” Fitch said.
The rating agency cited a high degree of uncertainty in regards to the nature and credit impact of emerging near and medium-term credit pressures.
“These rating aspects have the potential to extend pressure on town’s general operating budget and overall credit quality, resulting from LADWP’s status as a department of town,” Fitch said.
The rating agency will review the affected rankings as soon as practical, but no later than six months from the date of the discharge, it said.
The source of the ignition of the hearth “might be a key determination” to public power credit quality resulting from California’s unique legal application of inverse condemnation, Fitch wrote. California courts “have applied inverse condemnation to carry electric utilities accountable for wildfire property damages if its electrical equipment is the reason for the hearth without consideration as as to whether or not the utility actions were negligent,” Fitch noted.
At this point, there was “no indication” to suggest LADWP equipment was the source of the fires, nor has the California Department of Forestry and Fire Protection CalFire determined a cause.
Fitch’s working assumption is that LADWP will incur no liability related to the fires, but severe and acute credit risk would result if that assumption proved incorrect.
“The magnitude of the liability for the Palisades fire might be so large, the dimensions of the potential liability would likely result in a multi-notch downgrade for the ability revenue bonds and related projects,” Fitch wrote.
For town’s issuer default rating, Fitch said it would deal with potential wildfire-related liabilities in addition to its ability to adequately address its budgetary imbalance in its mid-year budget review and the event of its fiscal 2026 budget.
The rankings of IPA and 6 SCPPA projects are depending on the credit quality of LADWP’s power revenue bonds, Fitch said.
“A downgrade to the LADWP power revenue bond rating would lead to a downgrade to the project rankings,” Fitch said.