Fitch Ratings takes the following rating action on Garland, TX (Garland Power and Light, GP&L) electric system revenue bonds, as part city of Garland's issuance of $140 million combination tax and electric utility system revenue refunding bonds, series 2010:
--$107.7 million electric utility system revenue bonds affirmed at 'A+'.
The Rating Outlook is Stable.
SECURITY:
The bonds are secured by net revenues of the city's electric utility system.
RATING RATIONALE:
--The 'A+' rating reflects GP&L's solid financial metrics: strong debt service coverage and a superior cash position, providing flexibility during a period of increasing costs associated with Texas Municipal Power (TMPA).
--The service territory is stable. Economic indicators are stronger than national averages. Growth pressures are minimal with customer growth projected to be 1% annually.
--Credit concerns include the competitive pressure the utility faces from TXU Electric which serves the 15% of the city of Garland and is an easy comparison for customers.
--Regarding competitive pressures, the strong performance, extended life expectancy and low cost of the TMPA's Gibbon's Creek generating plant (70% of energy) has resulted in very competitive electric rates compared with TXU Electric.
--Despite the strong performance of the unit, the utility remains exposed to single generation risk that is associated with TMPA's Gibbon's Creek.
--Finally, Fitch considers the TMPA settlement between members to be a credit positive for all member cities involved. Fitch notes that the agreement results in increased financing flexibility for member cities while providing a means to make necessary unit improvements to Gibbon's Creek.
KEY RATING DRIVERS:
--The current rating expects GP&L's financial metrics to remain in line with the rating category despite the changing debt profile.
--Going forward, Fitch will monitor the utility's resource profile compared with the region, especially in light of efforts to diversify its resource mix.
--While future carbon emission legislation remains a credit concern for GP&L, the rate shock associated with such legislation declines as year 2018, the year all TMPA generation debt is retired, approaches and legislation is not enacted.
NEW ISSUE DETAILS:
The combination tax and electric utility system revenue bonds are being issued to refund a portion of TMPA's debt as well as fund the installation of a scrubber for the Gibbon's Creek unit. The increasing debt service costs for GP&L are more than off-set by the GP&L's declining TMPA fixed requirements, resulting in a slight decline in overall fixed costs associated with the unit. While the combination tax and revenue bonds extend the debt associated with the Gibbons Creek unit to 2030, Fitch notes GP&L's debt maturity schedule remains in-line with the plant's life expectation of 2035 and the utility will still experience a significant drop in fixed costs associated with the unit following the maturity of TMPA debt in 2018 based on the current schedule.
CREDIT SUMMARY:
Garland Power & Light (GP&L) is an enterprise fund of the City of Garland, TX and provides retail electric service to 68,000 customers within the city limits, approximately 85% of the electric customers within the city. The remaining 15% are served by the investor owned utility, TXU Electric. The City's principal source of power is its 220 mw (47%) share of the Gibbons Creek Power plant, which it owns through its interest in Texas Municipal Power Agency (rated 'A' with a Stable Outlook by Fitch).
These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports::
--'Revenue-Supported Rating Criteria' (Dec 29, 2009);
--'Public Power Rating Guidelines' (June 11, 2009).
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Drake Richey, +1-212-908-0325
Michael
Castracan, +1-212-908-0241
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com