Moody's downgrades LIPA's bond ratings
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Moody's Investor Service has downgraded LIPA's bond ratings by one notch with a negative outlook, citing "persistently weak" credit metrics and other uncertainties.
The move follows turmoil at LIPA after superstorm Sandy, including a cash crunch tied to more than $800 million in restoration expenses and the departure of several top officials in the wake of criticism of its storm response.
The Wednesday rating downgrade, which typically translates to higher borrowing costs because of slightly higher interest rates, came despite LIPA's recent securing of a $500 million credit facility and other moves to shore up its finances. Moody's took note of a list of uncertainties, including the timing of federal reimbursements for storm costs and the uncertain political climate of LIPA's future structure.
Earlier this week, Gov. Andrew M. Cuomo introduced draft legislation that would refinance a portion of LIPA's debt, provide greater oversight, stabilize bills and improve monitoring of its storm response. Nearly all of LIPA's functions would be handed off to PSEG of New Jersey, while LIPA would become a holding company. Among a long list of supporters, the Long Island Board of Realtors and the Long Island Builders Institute on Wednesday released statements in support of the proposed law.
In a note to investors, Moody's said the rating "reflects our view that in light of the intense political and media scrutiny following Storm Sandy, it will be increasingly challenging for the [LIPA] board to take steps to systematically enhance the long term financial and operational stability of the utility, particularly if those actions would lead to rate increases."
Cuomo has proposed dissolving the current 15-seat LIPA board and replacing it with five newly appointed industry and finance experts.
In a statement, LIPA spokesman Mark Gross said the authority was "disappointed by Moody's actions considering the aggressive steps LIPA, and our board of trustees have taken to raise liquidity and maintain financial strength."
He said LIPA continues to work with federal and state governments to secure "full and timely FEMA reimbursement for superstorm Sandy as well as additional monies for future storm hardening projects in order to continue the strengthening of our infrastructure. We take our credit rating very seriously and will continue to take actions that protect our bondholders and customers."
The federal reimbursement is expected to be upward of 90 percent of LIPA's costs.
Richard Kauffman, chairman of energy and finance under Cuomo, said the governor's proposal this week "includes several steps that the report notes will improve the rating. This includes a responsible plan for freezing rates, making sure FEMA funds are paid out on time, a timely transition for PSEG to take over operations, and establishing a reformed LIPA board structure to keep our tax-exempt status to maintain bond covenants."