In wake of Palisades Fire, strong demand for LA utility's bond issuance

Special to the Sarasota Herald Tribune

The Bureau of Alcohol, Tobacco, Firearms and Explosives began a controlled fire on April 29 as part of its ongoing investigation into the cause of the devastating Palisades Fire in California. The very next morning, the retail order period began for a $990 million debt issuance to fund the Los Angeles Department of Water and Power (LADWP), the municipal bond issuer who arguably will be most impacted by both the results of that ATF probe and the ongoing legal challenges related to the Palisades Fire.

This power system revenue bond deal was the first time LADWP has come to market since the devastation, whereby concerns arose quickly around potential liability related to both the cause and response to the event. In January, we published an article titled “Fire Exit,” discussing the bonds in light of inverse condemnation regulations in California, the risk of liability to LADWP, and possible scenarios of bond upside and downside performance in the near- to mid-term. At the time, the cause of the Palisades Fire was a complete unknown, and LADWP was fully in the crosshairs.

Today, many people are pointing to smoldering ashes from a smaller fire that started from fireworks on New Year’s Day, while arson has not been ruled out, nor has negligence, as the area has trails and foot traffic. LADWP bondholders’ initial fears that the fire was started by a transformer or power line have been reduced, though they cannot be fully eliminated yet. However, there have been reports that there are no power poles near the currently suspected point of origin. Though the risk is not zero, it appears significantly less likely that the initial spark came from LADWP infrastructure. 

Benjamin C. Pease
EVP & Managing Director of Asset Management
Chief Innovation Officer
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