Fitch rates the City of Austin's (the city) $130 million
electric (Austin Energy (AE)) system revenue refunding bonds, series
2006 'AA-'. In addition, Fitch upgrades the following ratings to 'AA-'
from 'A+':
City of Austin (Austin Energy)
-- $500 million outstanding separate lien bonds.
City of Austin (Water and Wastewater)
-- $1.097 billion outstanding separate lien bonds.
City of Austin (Austin Combined Utility System (ACU))
-- $741 million prior lien bonds;
-- $253 million subordinate lien bonds.
The Rating Outlook is Stable.
Bond proceeds will be used to refund $130 million of the city's outstanding tax-exempt commercial paper (CP) issued for Austin Energy. The bonds are expected to be insured and are scheduled to price competitively the week of May 8, 2006.
The rating upgrade reflects:
-- Financial performance of ACU which has demonstrated continued strength, including the ability to weather the financial impacts of an economic downturn earlier this decade;
-- A power generation portfolio that is advantageous within ERCOT and is sufficient to meet forecasted energy requirements for the intermediate term;
-- The very strong economic and demographic characteristics of the service territory (Fitch rates the city of Austin General Obligation (GO) bonds 'AA+') and;
-- Improved coordination between utility management and the city.
Underpinnings for the 'AA-' rating include a coal and nuclear based power supply which provides relative value to AE within ERCOT, solid financial performance and a well-diversified customer base. The rating is further bolstered by competitive rates for both systems, steady and moderate growth, a healthy service territory that benefits from a thriving local economy (including the presence of state government and the University of Texas) and ownership of sufficient water rights that are secured through the year 2050 with an option to extend an additional 50 years.
Credit concerns are limited and include the ability of utility management and city council to continue to work together to implement necessary policies. Issues management and city council will be facing in the future include the potential implementation of a rate increase by AE in 2009 after not increasing base rates since 1994 and that a significant portion (35-40%) of the utility's $1.7 billion capital improvement program (CIP) is expected to be funded from internally generated cash. Fitch believes continued coordination between management and city council is an essential component of the 'AA-' rating. Fitch also recognizes that AWU debt service coverage and liquidity levels have been below their historical averages over the last two years and expects to see improvements in both areas, so as to not have a negative impact on the combined system.
Debt service coverage for the Combined Utility System was 1.89 times (x) in 2005. Liquidity at the combined utility system level (168 days of cash on hand) is consistent with that of other 'AA-' systems with similar risk profiles. The transfer from the utility system to the city's general fund has remained at or below the targeted level of 9.1%, a policy which weathered a downturn in the economy earlier this decade. The stability of the general fund transfer during this period is viewed as an indication of the city's governance of the utilities as stand-alone enterprise funds, which Fitch views as a positive credit factor.
The 2006 bonds will be issued as parity electric utility system obligations under Austin's master ordinance which, since being adopted in 2000, allows AWU and AE to issue bonds separately. However, the prior lien bond ordinance (under which AWU and AE issued combined utility system bonds prior to adoption of the master ordinance) remains in effect as long as combined utility system bonds are outstanding. Therefore, while combined utility system bonds remain outstanding, the 'AA-' rating reflects the credit profile and the operating performance of both AE (78% of combined revenues) and AWU (22% of combined revenues) and the senior claim of the prior lien obligations.
The Austin Combined Utility System consists of AE and AWU. The system provides electric services to over 372,000 customers and treated water and wastewater services to approximately 190,000 and 174,000 customers, respectively. ACU serves both residential and commercial customers within a 450-square mile territory that includes the city of Austin and portions of Travis and Williamson Counties.
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.
City of Austin (Austin Energy)
-- $500 million outstanding separate lien bonds.
City of Austin (Water and Wastewater)
-- $1.097 billion outstanding separate lien bonds.
City of Austin (Austin Combined Utility System (ACU))
-- $741 million prior lien bonds;
-- $253 million subordinate lien bonds.
The Rating Outlook is Stable.
Bond proceeds will be used to refund $130 million of the city's outstanding tax-exempt commercial paper (CP) issued for Austin Energy. The bonds are expected to be insured and are scheduled to price competitively the week of May 8, 2006.
The rating upgrade reflects:
-- Financial performance of ACU which has demonstrated continued strength, including the ability to weather the financial impacts of an economic downturn earlier this decade;
-- A power generation portfolio that is advantageous within ERCOT and is sufficient to meet forecasted energy requirements for the intermediate term;
-- The very strong economic and demographic characteristics of the service territory (Fitch rates the city of Austin General Obligation (GO) bonds 'AA+') and;
-- Improved coordination between utility management and the city.
Underpinnings for the 'AA-' rating include a coal and nuclear based power supply which provides relative value to AE within ERCOT, solid financial performance and a well-diversified customer base. The rating is further bolstered by competitive rates for both systems, steady and moderate growth, a healthy service territory that benefits from a thriving local economy (including the presence of state government and the University of Texas) and ownership of sufficient water rights that are secured through the year 2050 with an option to extend an additional 50 years.
Credit concerns are limited and include the ability of utility management and city council to continue to work together to implement necessary policies. Issues management and city council will be facing in the future include the potential implementation of a rate increase by AE in 2009 after not increasing base rates since 1994 and that a significant portion (35-40%) of the utility's $1.7 billion capital improvement program (CIP) is expected to be funded from internally generated cash. Fitch believes continued coordination between management and city council is an essential component of the 'AA-' rating. Fitch also recognizes that AWU debt service coverage and liquidity levels have been below their historical averages over the last two years and expects to see improvements in both areas, so as to not have a negative impact on the combined system.
Debt service coverage for the Combined Utility System was 1.89 times (x) in 2005. Liquidity at the combined utility system level (168 days of cash on hand) is consistent with that of other 'AA-' systems with similar risk profiles. The transfer from the utility system to the city's general fund has remained at or below the targeted level of 9.1%, a policy which weathered a downturn in the economy earlier this decade. The stability of the general fund transfer during this period is viewed as an indication of the city's governance of the utilities as stand-alone enterprise funds, which Fitch views as a positive credit factor.
The 2006 bonds will be issued as parity electric utility system obligations under Austin's master ordinance which, since being adopted in 2000, allows AWU and AE to issue bonds separately. However, the prior lien bond ordinance (under which AWU and AE issued combined utility system bonds prior to adoption of the master ordinance) remains in effect as long as combined utility system bonds are outstanding. Therefore, while combined utility system bonds remain outstanding, the 'AA-' rating reflects the credit profile and the operating performance of both AE (78% of combined revenues) and AWU (22% of combined revenues) and the senior claim of the prior lien obligations.
The Austin Combined Utility System consists of AE and AWU. The system provides electric services to over 372,000 customers and treated water and wastewater services to approximately 190,000 and 174,000 customers, respectively. ACU serves both residential and commercial customers within a 450-square mile territory that includes the city of Austin and portions of Travis and Williamson Counties.
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.