NEW YORK–(BUSINESS WIRE)–Fitch Ratings assigns an ‘A-‘ rating to the $185 million North Carolina Eastern Municipal Power Agency (NCEMPA) power system revenue refunding bonds, series 2010 A & B.
The 2010 bonds are expected to price on Sept. 8, 2010. Proceeds will be used to current refund certain maturities of the series 1993B bonds.
In addition, Fitch takes the following ratings action:
–$2.4 billion NCEMPA outstanding power system revenue bonds are upgraded to ‘A-‘ from ‘BBB+’.
The Rating Outlook is Stable.
— The upgrade largely reflects NCEMPA’s solid financial operations which have proven to be stable through the current recessionary period.
— While overall leverage is still high and area demographics are below average, rapid amortization of outstanding debt and limited capital needs should improve debt ratios in the future.
— NCEMPA’s ‘take-or-pay’ contracts with its 32 members provides a certain level of revenue stability supported by healthy financial performance of the five largest members, a 25% step up provision and the oversight of the North Carolina Local Government Commission (LGC).
— NCEMPA has a diverse power supply mix that is complimented with supplemental power purchases from Progress Energy Carolina (PEC).
— The extension of the Brunswick nuclear unit 1 & 2 and Harris nuclear unit operating license provides significant financial flexibility to NCEMPA.
— Member electric sales to their primarily residential and commercial customer base experienced a moderate decline.
KEY RATING DRIVERS:
— Maintenance of financial metrics (debt service coverage, liquidity levels) coupled with declining leverage ratios are key rating drivers.
— Member’s continued support of a financially and operationally sound eastern power agency.
— Longer term, NCEMPA would be impacted if climate change legislation and renewable portfolio standards (RPS) are implemented.
The bonds will be secured by net revenues of the agency. Revenues are derived primarily for take-or-pay power sales agreements between NCEMPA and its member systems.
NCEMPA provides wholesale power supply to its 32 eastern North Carolina municipal members, which in turn provide retail service to their respective electric distribution system customers. NCEMPA provides power and energy from a combination of owned generation (693.9 MW of combined generating capacity) and purchases from supplemental power purchases from PEC. Recently extended supplemental power purchase contracts with PEC (through 2017) include several favorable terms and provisions. In 2009, NCEMPA’s owned generation provided 74% member’s power needs. Favorably, NCEMPA management and its members continue to demonstrate restraint in extending debt beyond 2026, even though the operating licenses of their nuclear units have been extended.
Each of the NCEMPA members own and operate an electric system and provide electric service to an estimated combined population of approximately 402,000 residents (approximately 267,000 electric customers).
NCEMPA generated sound financial performance illustrated by the 1.15 times (x) debt service coverage (DSC) generated by funds available for debt service (FADS) in 2009. While still unaudited, NCEMPA generated 1.19x DSC for the six month period ending June 30, 2010. Liquidity levels of 144 days cash on hand compare favorably with other Fitch rated wholesale power utilities in the ‘A-‘ category. While debt levels have improved over the past several years (illustrated by the debt per FADS declining trend to 7.7x), when NCEMPA debt is spread over the member’s retail customers it still generates a high $8,900 debt per customer. NCEMPA has recently increased its targeted working capital fund balance from $20 million to $35 million in order to improve liquidity levels and allow future rate flexibility if necessary.
The five largest NCEMPA members are, Greenville, Rocky Mount, Wilson, Kinston and New Bern, with a combined share of approximately 63% of the Initial Project Output. The area economy of eastern North Carolina is dependent on agriculture and the textile industry, however, manufacturing of electronic components, chemicals, plastics, and pharmaceuticals are also part of the employment base. While the area economy continues to be impacted by the economic downturn, member systems appear to be maintaining financial and operational performance.
Additional information is available at ‘www.fitchratings.com‘
In addition to the sources of information identified in the U.S.Revenue-Supported Rating Criteria, this action was additionally informed by information from Citigroup, Public Financial Management, R.W. Beck Inc. Hawkins Delafield & Wood, Creditscope and IHS Global Insight.
–‘Revenue-Supported Rating Criteria’, dated Aug. 16, 2010.
–‘Public Power Rating Guidelines’, dated June 11, 2009.
–‘U.S. Municipal Structured Finance Rating Criteria’, dated Aug. 16, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Revenue-Supported Rating Criteria
Public Power Rating Guidelines
U.S. Municipal Structured Finance Rating Criteria
Chris Jumper, +1-212-908-0594 begin_of_the_skype_highlighting +1-212-908-0594 end_of_the_skype_highlighting
One State Street Plaza
New York, NY 10004
Dennis Pidherny, +1-212-908-0738 begin_of_the_skype_highlighting +1-212-908-0738 end_of_the_skype_highlighting
Jessalynn Moro, +1-212-908-0608 begin_of_the_skype_highlighting +1-212-908-0608 end_of_the_skype_highlighting
Cindy Stoller, +1-212-908-0526 begin_of_the_skype_highlighting +1-212-908-0526 end_of_the_skype_highlighting