Moody's Affirms Aa3 Rating for SCPPA's Natural Gas Project A Bonds

Strategic Insights -

The Aa3 rating for the Southern California Public Power Authority's (SCPPA) Natural Gas Project A, 2008 Revenue Bonds (Taxable) (City of Burbank, California) has been affirmed by Moody's Investors Service. The rating reflects the credit quality of the Burbank (City of) CA Combined Utility Enterprise (BWP, Aa3 stable) and takes into account the take-or-pay contracts between SCPPA and BWP relating to certain natural gas resources. The bonds have approximately $8.4 million in debt outstanding, with a stable outlook.

Key Takeaways:

  • The Aa3 rating is based on the credit quality of BWP, which is characterized by a strong service area economy, unlimited rate setting authority, and a healthy financial profile with healthy fixed obligation charge coverage and sound liquidity.
  • The rating also takes into account the take-or-pay contracts between SCPPA and BWP, which ensure timely payments to cover O&M and debt service on the bonds.
  • The natural gas supplied by Project A diversifies the sources of natural gas for BWP and provides a modest hedge against market volatility.
  • BWP's credit profile benefits from a competitive rate structure, a diverse power supply portfolio, and a well-managed transition to a higher renewable portfolio standard.
  • The stable outlook reflects the stable outlook on BWP, which is also supported by SCPPA's joint powers agency structure, lack of taxing authority, and unregulated rates.
  • Factors that could lead to an upgrade of the rating include an upgrade of BWP's electric revenue bonds, while a downgrade of BWP's electric revenue bonds or poor project performance could lead to a downgrade of the rating.

Statistics:

  • Approximately $8.4 million in debt outstanding for the SCPPA Natural Gas Project A Bonds
  • Burbank (City of) CA Combined Utility Enterprise's (BWP) fixed obligation charge coverage ratio
  • BWP's sound liquidity profile, with a healthy cash position and minimal debt
  • 14.3% entitlement of SCPPA's share of the Pinedale Natural Gas Reserve
  • 27.3% entitlement of SCPPA's share of the Barnett Shale Formation
  • 2 million customers served by SCPPA's member utilities

Sources:

  • Moody's Investors Service ("Ratings Rationale")
  • Moody's Research (US Municipal Joint Action Agencies methodology published in December 2022)
  • https://ratings.moodys.com/rmc-documents/396803
  • https://ratings.moodys.com