2008-08-22 00:15:03 -
- Fitch Ratings assigns Arkansas Electric Cooperative Corporation's (AECC) commercial paper notes (CP) an 'F1' rating. In addition, Fitch affirms AECC's $326 million in outstanding tax-exempt, secured pollution control revenue bonds (issued by Jefferson County and the City of Siloam Springs) at 'A+'. The Rating Outlook is Stable.
AECC's new CP program is established to provide liquidity for general
working capital purposes. The CP program is authorized up to a maximum issuance of $210.5 million. The CP notes are payable from a pledge of revenues subordinate to AECC's payment of operating expenses and outstanding secured debt obligations. The CP notes will be privately placed and meet requirements of Rule 144A.
The CP rating also takes into account liquidity support being provided by a $210.5 million unsecured revolving credit facility with a syndicate of banks (short-term ratings of 'F1' to 'F1+') led by National Rural Utilities Cooperative Finance Corporation (CFC, short-term rating of 'F1'). Of the total liquidity support, CFC is providing the largest share at $85.5 million, with the remaining $125 million being provided by four lending institutions: CoBank, Regions Bank, US Bank, and PNC Financial Services.
Management has indicated that if CP authorization were to increase beyond the $210.5 million, AECC would request additional liquidity support to match the size of the CP program. The revolving credit facility has a three year maturity date from the closing date, and it contains standard legal covenants and fairly limited termination provisions. Goldman Sachs will act as dealer for the CP notes and US Bank as paying agent.
In addition to the support from the revolving credit facility, AECC has other sources of liquidity totaling $236.6 million, which include $39.4 million in available cash, $82.2 million distribution cooperative member line of credit, and $115 million, in aggregate, lines of credit from CFC, Regions Bank, and CoBank.
The credit ratings for AECC reflect the wholesale power provider's solid power sales contracts with its 17 member distribution electric cooperatives, historically constructive relationship with the Arkansas Public Service Commission (state's utility regulatory authority), diversified mix of generating resources and reasonable electric rates. Credit weaknesses center on tightening financial performance ratios from previously high levels, due to slower demand growth and higher than anticipated costs. For FYE 2006 and 2007, debt service coverage has fallen to less than 1.09 times (x), compared to the median of 1.15x for their peers. Assuming financial performance remains stable, AECC's management does not forecast seeking rate relief until 2012 (closer to when the Turk coal-fired generation plant is expected to be placed into service).
While Fitch expects AECC's to maintain adequate financial performance metrics for the rating category, with equity to total capitalization projected at more than 40% in the near term, any further deterioration in financial ratios would be a key credit concern.
AECC is a not-for-profit electric generation and transmission cooperative providing wholesale electricity to its 17 member rural electric distribution cooperatives in Arkansas. The members provide retail electric service to approximately 485,000 customers.
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.
Fitch Ratings, New York
Alan Spen, +1-212-908-0594
Joanne Ferrigan, +1-212-908-0399
Cindy Stoller, +1-212-908-0526 (Media Relations)
