Fitch Ratings affirms the 'AA/F1+' rating on the city of Lincoln, NE Lincoln Electric System's $584.1 million in outstanding electric system revenue bonds.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'AA' rating reflects Lincoln Electric System's (LES) low cost of power, solid financial metrics, strong management practices, and a stable service area.
--The 'F1+' rating is based on the seven-year revolving credit agreement provided by National Australia Bank (rated 'AA/F1+' by Fitch) that expires Sept. 1, 2012 in combination with the underlying credit strengths of LES.
--LES's low cost of power translates into customer rates that are among the lowest in the nation. Additionally, LES has a history of implementing adequate rate increases to meet operating needs and maintain the vertically integrated system.
--LES benefits from a very stable customer base, with little customer concentration. Lincoln is the state capital of Nebraska and is also the home of the University of Nebraska, both of which provide substantial stability.
--Another credit strength is LES's sufficient capacity to meet current and projected demand. The utility does not anticipate the need for new generation through at least 2025, based on current projections.
--Fitch expects that LES will be able to prudently manage its cost structure in light of developing environmental regulations on carbon. LES has been monitoring the carbon issue through risk modeling and potential impacts on future financial performance and rate increases.
--LES maintains a conservative debt profile as all of its long-term debt is in the fixed-rate mode and no future debt is planned.
KEY RATING DRIVERS:
--Maintenance of strong financial metrics.
--While not unique to LES, especially within the region, its exposure to coal-fired generation could result in increased costs in the long term as a result of pending carbon emission and climate change legislation. Fitch will monitor the potential impact of carbon reduction legislation on LES's financial and credit profile as policies and regulations are formulated and enacted.
SECURITY:
The bonds are secured by a net revenue pledge of the utility after payment of operations and maintenance expenses.
CREDIT SUMMARY:
LES is a retail electric system serving more than 129,332 customers within 200 square miles. This service area includes Lincoln, Prairie Home, Waverly, Walton, Cheney and Emerald. In 2009, the largest components of retail revenues were derived from residential customers (42.6%), commercial customers (35.3%) and industrial customers (12.9%). Wholesale sales accounted for 10.9% of total electric revenues in 2009.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
Related Research:
'Revenue-Supported Rating Criteria', dated 16 Aug 2010.
'Public Power Rating Guidelines', dated 11 Jun 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548606
Public Power Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=447150
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Contacts:
Fitch Ratings
Primary Analyst
Eric V. Espino, +1-212-908-0574
Associate
Director
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst
Christopher Jumper, +1-212-908-0594
Senior Director
or
Committee
Chairperson
Jessalynn Moro, +1-212-908-0608
Senior Director
or
Media
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cindy.stoller@fitchratings.com
