Fitch Ratings has assigned 'AA' ratings to the following tax exempt and taxable revenue obligation bonds for South Carolina Public Service Authority (Santee Cooper):
--$300 million tax exempt bonds, 2008 series A;
--$200 million taxable bonds, 2008 series B.
The bonds are expected to price during the week of Oct. 20, with proceeds to be used to fund portions of the capital improvement program. Fitch has also affirmed the following outstanding ratings for Santee Cooper:
--$3.4 billion revenue bonds at 'AA';
--Taxable and tax-exempt commercial paper notes at 'F1+'.
The Rating Outlook is Stable.
The 'AA' rating reflects Santee Cooper's strong financial profile, which compares favorably with other 'AA' rated wholesale municipal utilities. This includes strong financial metrics, solid liquidity, and timely cost recovery mechanisms. Additional credit support is provided by Santee Cooper's sound power resource planning, reliable and low-cost power supply, and good management policies and practices.
Also taken into consideration are Santee Cooper's challenges as they strive to meet system growth. As a result, the system faces increasing capital costs, associated with permitting and constructing coal-fired generating plants, in addition to participating in a new nuclear project.
Fitch will continue to monitor Santee Cooper's ability to manage the implementation of its capital improvement plan to meet the increasing energy requirements of its customers. Looking forward, while Santee Cooper projects slightly lower margins and debt service coverage over the next three to five years, they are still expected to remain more than adequate for the 'AA' rating category. While management is looking to diversify its power resource fuel mix with the addition of a new nuclear generating unit, currently 80% of its energy is derived from coal-fired units, and costs associated with future restrictions on CO2 emissions may have an impact on Santee Cooper's favorable cost structure relative to its neighboring systems over time.
The 'F1+' rating on Santee Cooper's commercial paper (CP) notes is based on both the internal liquidity support of Santee Cooper and a $450 million line of credit provided by Dexia Credit Local (rated 'AA-/F1+' with a Stable Outlook by Fitch) and BNP Paribas (rated 'AA/F1+' with a Stable Outlook). To date, there is $402 million of outstanding CP notes, consisting of $152 million taxable and $250 million of tax-exempt. Given the recent market turmoil, Santee Cooper has experienced some difficulty in rolling its outstanding notes. The tax-exempt notes have rolled; however, with a shorter duration than has historically been the case. Currently, $57 million of the taxable notes have been put to the liquidity facility.
In addition to the line of credit, which has an October 2010 expiration, Santee Cooper allocated current self liquidity of between $250 million and $275 million to support the CP program. In addition, approximately $275 million from the series A and B bond proceeds will be available to support the CP program, providing aggregate liquidity of between $500 million and $550 million. Santee Cooper anticipates that aggregate resources should provide sufficient liquidity for at least a one year period. If current market conditions continue or decline further, management has prudently stated that it would curtail or ramp down construction projects until market conditions stabilize. Fitch views Santee Cooper's liquidity position as sufficient to warrant the 'F1+' rating.
With approximately $1.5 billion in annual revenues and nearly $5 billion in assets, Santee Cooper is one of the largest municipal electric utilities in the nation. Santee Cooper is engaged in the generation, distribution, and transmission of electricity, selling to wholesale and retail customers throughout South Carolina. In 2007, wholesale sales accounted for 56.8% of electric revenues with large industrial sales accounting for 23.7% and direct retail sales to residential and commercial customers accounting for 19.5% of electric revenues.
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.