KBRA Releases Report Assigning AA Rating to MICLA Lease Revenue Refunding Bonds Series 2021-A and Series 2021-B; Revising Outlook for City of Los Angeles GO and MICLA Credits to Negative | Financial Buzz

KBRA Releases Report Assigning AA Rating to MICLA Lease Revenue Refunding Bonds Series 2021-A and Series 2021-B; Revising Outlook for City of Los Angeles GO and MICLA Credits to Negative

On February 11, 2021, Kroll Bond Rating Agency (KBRA) assigned a long-term rating of AA with a Negative Outlook to the following Municipal Improvement Corporation of Los Angeles (MICLA) bonds:

  • Lease Revenue Refunding Bonds, Series 2021-A

    (Capital Equipment and Real Property) (Federally Taxable)
  • Lease Revenue Refunding Bonds, Series 2021-B

    (Capital Equipment and Real Property) (Tax-Exempt)

KBRA additionally affirmed the long-term rating of AA+ for outstanding City of Los Angeles, CA General Obligation bonds and revised the Outlook to Negative, from Stable. The revised outlook reflects KBRA’s view that the City’s financial performance, reserve position and operating flexibility have been adversely impacted by the pandemic. Moreover, despite efforts to reduce spending, there now remain relatively few politically palatable solutions for achieving near to mid-term budgetary balance absent additional federal funding and the City’s full recovery from the grip of the pandemic. Both of these prospects, at present, entail uncertainty over the near term.

The City has made frequent, extraordinary mid-year refinements to the FY 2021 Budget as the gap between budgeted and actual economically sensitive tax revenues has grown. Approximately seven months into the fiscal year, the City estimates a FY 2021 General Fund budgetary shortfall of $675 million, which is up from the $400 million estimated in July. The City has also identified a $75.7 million spending gap for the remainder of FY 2021, the amount of which has grown by almost 200% since December 2020, creating a total FY 2021 General Fund budget gap of $750.7 million. The City has not developed specific solutions for $77.5 million (10.3%) of this budget gap.

Lastly, KBRA affirmed the long-term rating of AA and revised the Outlook to Negative, from Stable, for the following Municipal Improvement Corporation of Los Angeles bonds:

  • Lease Revenue Bonds, Series 2014-A (Real Property)
  • Lease Revenue Bonds, Refunding Series 2014-B (Real Property)
  • Taxable Lease Revenue Refunding Bonds, Series 2015-A
  • (Los Angeles Convention Center)
  • Lease Revenue Refunding Bonds, Series 2016-A (Capital Equipment)
  • Lease Revenue Refunding Bonds, Series 2016-B (Real Property)
  • Lease Revenue Bonds, Series 2018-A (Capital Equipment)
  • Lease Revenue Bonds, Series 2018-B (Real Property)
  • Lease Revenue Refunding Bonds, Series 2018-C (Real Property – Taxable)
  • Lease Revenue Bonds, Series 2019-A (Capital Equipment)
  • Lease Revenue Refunding Bonds, Series 2019-B (Real Property)
  • Lease Revenue Bonds, Series 2020-A (Capital Equipment)
  • Lease Revenue Bonds, Series 2020-B (Real Property)
  • Lease Revenue Refunding Bonds, Series 2020-C (Real Property) (Federal Taxable)

Click here to view the report. To access ratings and relevant documents, click here.

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Only those ratings on securities issued by this Issuer that also are denoted on the Security Ratings tab for this Issuer on KBRA.com as “endorsed” by Kroll Bond Rating Agency Europe Limited into the European Union and/or by Kroll Bond Rating Agency UK Limited into the UK are covered by the disclosures set forth in this press release and the corresponding Information Disclosure Form. No other ratings on issuances by this Issuer have been endorsed into the European Union or the UK, and the disclosures set forth herein and in the corresponding Information Disclosure Form are inapplicable to those ratings and may not be used for regulatory purposes by European Union or UK investors in these securities.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Contacts

Analytical Contacts

Linda Vanderperre, Senior Director (Lead Analyst)

+1 (646) 731-2482

linda.vanderperre@kbra.com

Peter Scherer, Associate

+1 (646) 731-2325

peter.scherer@kbra.com

Karen Daly, Senior Managing Director (Rating Committee Chair)

+1 (646) 731-2347

karen.daly@kbra.com

Business Development Contact

Bill Baneky, Managing Director

+1 (646) 731-2409

william.baneky@kbra.com

James Kissane, Senior Director

+1 (213) 806-0026

james.kissane@kbra.com