Fitch Ratings has assigned an 'AA-' rating to New Braunfels Utility System, TX's (NBU) $10 million utility system revenue bonds, series 2009A. Fitch also affirms NBU's outstanding $26 million utility system revenue bonds at 'AA-'. The Rating Outlook is Stable.
Proceeds from the series 2009A utility system revenue bonds will reimburse the city for certain capital expenditures related to the purchase of water rights. The fixed rate bonds will be secured by a net revenue pledge of the combined utility systems and are expected to price the week of Oct. 29, 2009.
The 'AA-' rating reflects the credit characteristics of the combined utility, of which the electric distribution system accounts for 80% of operating revenues. Credit fundamentals include very strong financial metrics (including debt service coverage and free cash flow to support capital spending), low-cost power supply, a retail electric rate structure that includes a cost recovery mechanism adjusted monthly to recover variable fuel prices, and strong management policies and practices.
The majority of NBU's power (76%) is supplied through a contract with the Lower Colorado River Authority (LCRA, rated 'A+' with a Stable Outlook by Fitch). The existing contract with LCRA provides NBU competitively priced power and protection in the event of significant load loss. While the contract is an all-requirements contract, it has provisions to allow the city to buy power from other providers and NBU has taken advantage of that provision. The other 24% of its power supply is currently purchased from San Antonio City Public Service (rated 'AA+' with a Stable Outlook by Fitch). The LCRA contract expires in 2016, and NBU is not required to notify LCRA of its intent to extend the contract until June 2011. NBU is currently in the process of evaluating the feasibility of extending the LCRA contract, in full, or in part, as well as other options for long-term power supply. While NBU has experience buying a portion of its energy from counterparties other than LCRA, an NBU decision not to extend its LCRA contract could be a significant shift in its risk profile after 2016. Fitch will be monitoring NBU's power supply strategy and potential cost and risk exposures for the utility.
NBU's water system consists of water supplied from the Guadalupe River and an eight million gallon per day (MGD) treatment plant. Treatment capacity is adequate, although NBU anticipates beginning an expansion of the facility to meet anticipated growth in the next five years. Supplemental or peaking water supply is provided by the city's rights to withdraw water from the Edwards Aquifer. NBU operates three small wastewater treatment facilities. Further expansion is scheduled for 2012-2013.
NBU's combined financial position is very strong, with 5.6 times (x) debt service coverage in fiscal 2008 (year end July 31), or 4.3x after the transfer to the general fund. Fitch expects 2009 financial performance to exhibit characteristics consistent with prior strong performance. Excess cash flow is used to support capital spending for the electric system. Projections indicate that debt service coverage should remain in the same historical range with a slight decline in 2012-2013 when additional debt is issued to fund wastewater treatment plant expansion. The overall five year capital plan is estimated at $130 million, around 45% of which will be funded from debt. Following the issuance, unrestricted cash will be equal to $40 million, a slight decline from 2008 fiscal year end, but still a healthy 135 days of operating expenses, given the lower operating risk provided by not owning generation resources.
New Braunfels is located in central Texas between San Antonio and Austin along Interstate Highway 35 (I35). The city has a 2008 estimated population of roughly 54,000, which represents an increase of nearly 50% increase from 2000. NBU serves 28,000 electric customers and approximately 20,000 water and sewer customers.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
Contacts:
Fitch Ratings
Drake Richey, 212-908-0325, New York
Kathy
Masterson, 415-732-5622, San Francisco
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com