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Rating Action:

Moody's assigns Aa2 to City of Los Angeles, CA's 2021-A GOs and 2021-B Refunding GOs

13 Oct 2021

New York, October 13, 2021 -- Moody's Investors Service has assigned Aa2 ratings to the City of Los Angeles, CA's $211.9 million General Obligation Bonds, Series 2021-A (Taxable) (Social Bonds) and $65.7 million General Obligation Refunding Bonds, Series 2021-B (Tax-Exempt). Post-issuance, the city will have $739.3 million in outstanding general obligation (GO) bonds. The outlook is stable.

RATINGS RATIONALE

The Aa2 GO bond rating reflects the city's exceptionally large tax base, with a strong growth trend from new commercial and residential development, which has slowed but not reversed following the economic effects of the coronavirus pandemic. The rating incorporates the resulting high per capita assessed valuation, but a somewhat below average resident socioeconomic profile. The rating further reflects the city's solid general fund position, supported by nine years of healthy revenue increases and solid reserve policies, which combined to put the city in a solid position as it entered the pandemic. Pandemic-driven declines in tax revenue in fiscal 2020 and 2021 have been offset by the city's cost-cutting measures and a substantial allocation of American Rescue Plan Act (ARPA) funds. The city's financial position also benefits from substantial special revenue funds available for governmental operations that would otherwise require general fund resources. The rating positively incorporates the city's low level of rapidly retired direct debt, balanced against the city's substantial unfunded pension and OPEB liabilities. It further incorporates the city's strong management of an unusually large and complex operation.

RATING OUTLOOK

The outlook on the city's long-term ratings is stable, which reflects the city being financially well positioned to address likely cost pressures related to restoring services cut in the prior year and implementing deferred programmatic spending and capital projects. It also reflects management's wherewithal to address the challenges of any further revenue declines and ongoing expenditures resulting from the pandemic public health emergency. The city entered fiscal 2020 with its balance sheet at an all-time strong point, and while the city needed to draw down its budgetary reserve for fiscal 2020, there are significant other available balances remaining. The city's cost cutting measures and expenditure controls minimized the use of reserves to close coronavirus-driven funding gaps for fiscal 2021, and the use of the initial allocation of ARPA funds for eligible expenditures allowed the city to avoid borrowing for operations. The city is projecting that budgetary reserves for fiscal 2022 will exceed pre-pandemic levels. The outlook recognizes the city's large and diverse tax base, which is fundamentally healthy, as well as the sound financial policies implemented by city management.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- A rapid return to recent rates of revenue growth

- Material decrease in balance sheet leverage, including both direct debt and unfunded pension and OPEB liabilities

- Continued strong financial position, including maintaining or building available reserves

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Prolonged deterioration of the tax base and economy

- Weakened financial position through deficit spending or significant increases in fixed costs

- Material increase in leverage from unfunded pension and OPEB liabilities

LEGAL SECURITY

The GO bonds are secured by the city's dedicated, voter-approved unlimited property tax pledge. The ad valorem property taxes levied and collected for the bonds are restricted for use to pay the GO bond debt service.

USE OF PROCEEDS

Proceeds of the Series 2021-A bonds will be used for purposes outlined in voter-approved Measure HHH, including to fund affordable housing for the homeless and for those in danger of becoming homeless, such as battered women and their children, veterans, seniors, foster youth, and the disabled; and to provide facilities to increase access to mental health care, drug and alcohol treatment, and other services.

Proceeds of the Series 2021-B bonds will be used to refund portions of the city's outstanding 2011-B and 2012-A GO bonds on a current basis.

PROFILE

The City of Los Angeles encompasses 470 square miles of Los Angeles County (Aa1 stable) and has an estimated population of 4.0 million, making it the second most populous city in the US. Los Angeles was established in 1781 and adopted its original charter in 1850, most recently amended in 1999. The city's governing body consists of a mayor and a fifteen-member city council.

METHODOLOGY

The principal methodology used in these ratings was US Local Government General Obligation Debt published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260094. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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No Related Data.
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