Fitch Ratings has assigned an 'AA' rating to City
Utilities of Springfield's, MO (CU) $60 million of lease/purchase
agreement (various projects -2006) obligations. These obligations are
subordinate to outstanding lease obligations. Proceeds will help fund
a $5.25 million landfill gas-to-energy project, a $3.97 million
natural gas peak shaving project, and a $55.4 million refunding of the
system's 'McCartney' lease obligations. Senior lien revenue bonds and
senior lien lease obligations are affirmed at 'AA'. The Rating Outlook
is Stable. The 2006 lease obligations are expected to price the week
of Jan. 23, 2006.
Fitch believes that CU's intrinsic creditworthiness supercedes any lien standing, and thus, there is no rating differential between the system's revenue bonds and senior and subordinate lease obligations. Although CU expects to issue additional revenue bonds later this year, outstanding revenue bonds mature in March 2006, and the senior lease is closed and runs off at a rapid rate thereafter.
CU's strong credit rating continues to reflect their very competitive retail rates, low-cost power resources, and predictable financial standing characterized by historically high debt service coverage, accelerated debt pay-down, and low leverage. The customer base is diverse, with electric revenues in 2005 derived 38% from residential sales, 47.6% from commercial and interdepartmental sales, and 14.4% from industrial sales. Other credit strengths include steady sales growth (2.5% annual load growth over the past 5 years) and a well run gas distribution system with multiple supply contracts and market based pricing.
The rating also takes into account CU's need to secure additional power resources. As part of CU's capital plan, management expects to invest in 300 megawatts of base load coal-fired generation, at a total cost of approximately $500 million-$700 million. This debt will be senior to the 2006 and outstanding senior lien lease obligations. At the earliest, the new unit would come on line in the 2009-2011 timeframe, offsetting system growth and replacing the expiring purchase power contracts of about 110 mw. Prior to 2015, CU will be slightly long power, and management conservatively estimates 50 megawatts (mw) of market sales in their forecasts. Management has assured Fitch that it will make appropriate rate adjustments to meet its stated financial targets and will provide Fitch with an update when the full scope of the power resource plan is clearer.
Fitch has historically recognized CU's ability and willingness to raise rates to maintain its solid financial position. In fiscal year 2004, CU approved a 3% base rate increase, the first in 11 years. CU directly passes fuel charges to its electric customers through a mechanism that is updated semi-annually (the gas system adjusts on a monthly basis). In fiscal year 2005, CU posted strong debt service coverage at 4.88 times (x), cash liquidity of about 26 days of operating expenses, and very low debt-to-(FADS) of 1.5x. While leverage is expected to increase over the next couple of years, CU's target debt service coverage and liquidity position are anticipated to remain in line with past levels.
CU is a combined municipal utility that serves over 102,000 electric, 80,000 gas and 78,000 water customers, in the Springfield metropolitan area. The utility is organized as two separately secured financial enterprises, the public utility (secured by electric, gas, telecom, and transportation revenues) and the waterworks system (secured by water revenues). The public utility accounts for 91% of total CU operating revenues, with public utility revenues comprised by 65% electric, 34% gas, and less than 1% telecom and transportation.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch believes that CU's intrinsic creditworthiness supercedes any lien standing, and thus, there is no rating differential between the system's revenue bonds and senior and subordinate lease obligations. Although CU expects to issue additional revenue bonds later this year, outstanding revenue bonds mature in March 2006, and the senior lease is closed and runs off at a rapid rate thereafter.
CU's strong credit rating continues to reflect their very competitive retail rates, low-cost power resources, and predictable financial standing characterized by historically high debt service coverage, accelerated debt pay-down, and low leverage. The customer base is diverse, with electric revenues in 2005 derived 38% from residential sales, 47.6% from commercial and interdepartmental sales, and 14.4% from industrial sales. Other credit strengths include steady sales growth (2.5% annual load growth over the past 5 years) and a well run gas distribution system with multiple supply contracts and market based pricing.
The rating also takes into account CU's need to secure additional power resources. As part of CU's capital plan, management expects to invest in 300 megawatts of base load coal-fired generation, at a total cost of approximately $500 million-$700 million. This debt will be senior to the 2006 and outstanding senior lien lease obligations. At the earliest, the new unit would come on line in the 2009-2011 timeframe, offsetting system growth and replacing the expiring purchase power contracts of about 110 mw. Prior to 2015, CU will be slightly long power, and management conservatively estimates 50 megawatts (mw) of market sales in their forecasts. Management has assured Fitch that it will make appropriate rate adjustments to meet its stated financial targets and will provide Fitch with an update when the full scope of the power resource plan is clearer.
Fitch has historically recognized CU's ability and willingness to raise rates to maintain its solid financial position. In fiscal year 2004, CU approved a 3% base rate increase, the first in 11 years. CU directly passes fuel charges to its electric customers through a mechanism that is updated semi-annually (the gas system adjusts on a monthly basis). In fiscal year 2005, CU posted strong debt service coverage at 4.88 times (x), cash liquidity of about 26 days of operating expenses, and very low debt-to-(FADS) of 1.5x. While leverage is expected to increase over the next couple of years, CU's target debt service coverage and liquidity position are anticipated to remain in line with past levels.
CU is a combined municipal utility that serves over 102,000 electric, 80,000 gas and 78,000 water customers, in the Springfield metropolitan area. The utility is organized as two separately secured financial enterprises, the public utility (secured by electric, gas, telecom, and transportation revenues) and the waterworks system (secured by water revenues). The public utility accounts for 91% of total CU operating revenues, with public utility revenues comprised by 65% electric, 34% gas, and less than 1% telecom and transportation.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.