Fitch Ratings affirms the following ratings:
--Lower Colorado River Authority, TX Tax-Exempt Commercial Paper (CP) Notes Series A, authorized to be outstanding in an amount up to $250 million, 'F1+'.
Fitch is not reviewing its other outstanding ratings for LCRA at this time. A full review of other security types is scheduled for summer 2011.
RATING RATIONALE:
--The 'F1+' rating is based on the internal liquidity support of LCRA and dedicated revolving credit agreement with JPMorgan Chase Bank;
--LCRA's overall healthy financial metrics include consistent debt service coverage above 1.25 times (x) on an unconsolidated basis, which is in line with rating category medians for wholesale providers;
--Revenues are primarily derived from long-term power sales contracts with a diverse mix of 43 municipal and cooperative utility systems across central Texas;
--Some of the current customer contracts expire in 2016, before the maturity of the outstanding debt. Contracts have been renewed by approximately 64% of customers, extending until 2041; however, uncertainty remains for the other customers, which must notify LCRA of their intent by June 25, 2011;
--The coal and natural gas fired generation portfolio is competitive with other regional providers, and variable costs are recovered in a timely fashion through a fuel recovery surcharge that can be adjusted with board action;
--Capital needs appear to be manageable, but are dependent on future load needs, which remain uncertain and dependant on the customer contract renewals of the next nine months.
KEY RATING DRIVERS:
--Ongoing uncertainty exists regarding LCRA's long-term power supply portfolio, given the option of members to decide through June 2011 and the longer-term risk of excess capacity made possible in the new contract provisions after 2016 that include load release options. Fitch anticipates completing a review of the long-term rating in July 2011 once final notification from all customers is received;
--Rating maintenance will depend on preservation of financial metrics at or better than currently satisfactory levels.
--Carbon regulation or legislation could impact the competitive position of LCRA.
--The tax-exempt program is supported by a $250 million revolving credit facility provided by JPMorgan Chase Bank (rated 'AA-/F1+' with a Stable Outlook by Fitch). The revolving credit agreement is a dedicated facility that LCRA could draw upon to cover payments on the notes if the notes are unable to be remarketed. The revolving credit agreement expires on May 19, 2014. In addition to the revolving credit facility, LCRA had funds of approximately $330 million in the revenue fund as of April 30, 2011 that could be used to support the CP programs, if needed.
As of April 30, 2011, LCRA had $32.2 million in outstanding tax-exempt CP notes.
For additional information on the rating, see Fitch Press Release, 'Fitch Assigns LCRA Revs 'A+' Rating; Outlook Stable', dated October 12, 2010.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
Applicable Criteria and Related Research:
--'Rating Guidelines for Commercial Paper Note Programs Issued with External Support' (April 11, 2011);
--'Revenue-Supported Rating Criteria' (Oct 08, 2010);
--'Public Power Rating Guidelines' (June 11, 2009).
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Rating Guidelines for Commercial Paper Note Programs Issued with External Support
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=619027
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
U.S. Public Power Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=613065
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
Primary Analyst
Kathy Masterson, +1-415-732-5622
Senior
Director
Fitch Ratings
650 California Street, 4th Floor
San
Francisco, CA 94108
or
Secondary Analyst
Dennis Pidherny,
+1-212-908-0738
Senior Director
or
Committee Chairperson
Chris
Jumper, +1-212-908-0594
Senior Director
or
Media
Relations:
Cindy Stoller, +1-212-908-0526
Email: cindy.stoller@fitchratings.com