Moody's may downgrade LIPA, blasts Albany
In a report issued Monday night that offered unusually sharp criticism of Albany and the State Legislature, the Wall Street ratings agency said LIPA's denuded leadership "leaves the organization with the bare minimum number of trustees needed to take action" to deal with an estimated $950-million bill for repairs from superstorm Sandy.
In the report, Moody's said that if LIPA cannot take "substantial and concrete actions" to improve its financial position despite political pressure, it will likely be downgraded.LIPA chairman Howard Steinberg and chief operating officer Michael Hervey resigned last month amid harsh criticism of recovery work after hundreds of thousands of Long Islanders lost power in the Oct. 29 superstorm. Hervey will leave at the end of the year. A trustee and a vice president also resigned.
The authority's 15-member board still has six vacancies, four to be filled by Cuomo, two by the legislature leaders.
Moody's said the "inability of government officials to promptly address the expiring terms is . . . a governance deficiency, and one that could severely impede prompt decisive leadership which we believe is needed given the current challenges at LIPA."
Last week, rating agency Standard & Poor's raised similar concerns that thinning management ranks would hurt LIPA's finances and operations.
The Cuomo administration declined to comment on the report.
Though at least 75 percent of the costs of the storm are eligible for reimbursement from the Federal Emergency Management Agency, the utility has to cover the costs in the short term. LIPA is still waiting for about $81 million from FEMA for Tropical Storm Irene more than a year ago. The utility has immediate financial resources, but its liquidity and credit remain weak, Moody's said.
On Thursday, the authority board is expected to approve short-term borrowing to be reimbursed by FEMA, a $500-million credit facility, and to convert existing short-term debt into long-term debt.
"Liquidity sources are designed to prevent a downgrade," LIPA spokeswoman Elizabeth Flagler said in an email. She said electric rates will be flat at the beginning of next year but LIPA may pass along the Sandy costs not covered by FEMA to its customers in the future.
Moody's rates the authority A3, an investment-grade rating, with a negative outlook. Downgrades generally increase borrowing costs, which would likely require LIPA to charge more or cut costs.
Negative media coverage hasn't had a notable impact on how LIPA's bonds trade in the market, experts said.
"The headlines don't really imperil LIPA bond holders," said Matt Fabian, managing director of Municipal Market Advisors.