By Davide Barbuscia
NEW YORK (Reuters) – Los Angeles municipal bond issuers should give you the chance to soak up losses brought on by fires within the region without disrupting payments to investors, U.S. bond fund manager PIMCO said on Wednesday.
“While the situation is devastating, our baseline expectations are that the long-term credit impact of the Los Angeles wildfires shall be manageable,” said the Newport Beach, California-based firm, which manages around $2 trillion.
The Los Angeles region has been devastated by a series of wildfires since Jan. 7 which can be still not fully contained.
Los Angeles city and county, together with nearby school districts and the state of California, are in a powerful financial position to administer losses, ensuring bondholder payments remain unaffected, said PIMCO.
It highlighted the municipality’s broad tax base that, despite property damage and losses, will proceed to generate sufficient revenues to satisfy debt obligations. Federal Emergency Management Agency (FEMA) funding for temporary assistance can even be key to make sure continued debt payments, it said.
“We imagine all affected local governments entered this disaster with healthy liquidity and reserve funds, helping to offer near-term funding and a longer-term bridge to potential FEMA reimbursement for rebuilding,” said PIMCO.
In contrast to town, county, state and college districts, the credit profile of the Los Angeles Department of Water and Power (LADWP) has deteriorated after it was sued for allegedly failing to properly manage water supplies critical to fighting the deadly Palisades Fire, PIMCO said.
Rankings agency S&P Global Rankings downgraded the U.S. largest utility’s water and power bonds by two notches earlier this month citing potential vulnerability to liability claims.
The danger of missed debt payments is low as a result of solid financials, said PIMCO, but investors may require higher returns to carry LADWP bonds to take note of the potential financial impact of litigations over the following few years, it said.
LADWP didn’t immediately reply to an email searching for comment outside of standard business hours.
(Reporting by Davide Barbuscia; Editing by Christina Fincher)