2008-07-10 23:49:11 -

- Fitch assigns ratings of 'AAA/F1+' to the M-S-R Public Power Agency's (California) San Juan Project subordinate lien revenue bonds consisting of $62,500,000 series 2008M and $17,000,000 series 2008N (the Bonds). The ratings are based on the ratings of two irrevocable, direct-pay letters of credit (LOCs) supporting the bonds and the application of Fitch's joint probability methodology. The long-term 'AAA' ratings are based jointly on the M-S-R Public Power Agency's subordinate lien San Juan project revenue bonds (currently rated 'A+' by Fitch) and the support provided by two LOCs issued by Dexia Credit Local, acting through its New York branch (currently rated 'AA+/F1+' by Fitch) securing the bonds. The short-term 'F1+' ratings are based solely on the LOCs.

The

long-term 'AAA' ratings are based on Fitch's methodology which considers the joint probability of the failure of both a rated obligor and a bank LOC provider. The methodology results in a rating that is two notches higher than the stronger of the two credits if the following conditions are met: (1) both entities have a rating of 'A' or higher; (2) the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and (3) the credit of the bank and the rated obligor have a low degree of correlation. If either the M-S-R Public Power Agency's subordinate lien San Juan project revenue bonds or the Bank were downgraded to 'A-' or lower, the joint probability can no longer be applied.

Each series will be supported by the corresponding LOC. The bank is obligated to make payments of principal of and interest on the bonds upon maturity and redemption, as well as the purchase price for tendered bonds. Each of the LOCs provides full coverage of principal plus an amount equal to 50 days' interest at a maximum rate of 15% based on a year of 365 days and purchase price for tendered bonds. The ratings will expire upon the earliest of: July 24, 2011, the initial stated expiration date for both LOCs, unless such date is extended; following a conversion to an interest rate mode other than the daily or weekly rate; upon any prior termination of each LOC; or following an event of default under the reimbursement agreement. The underwriter for the bonds is Bear, Stearns & Co. Inc. and the Remarketing Agent is J.P. Morgan Securities Inc. The sale is expected to be on or about July 24, 2008.

The Series 2008M bonds initially bear interest at a daily interest rate, but may be converted to a weekly, monthly, quarterly, semi-annual, medium term rate or fixed rate mode. The Series 2008N bonds initially bear interest at a weekly interest rate, but may be converted to a daily, monthly, quarterly, semi-annual, medium term rate or fixed rate mode. While the bonds bear interest in the daily and weekly rate modes, interest payments are on the first business day of each calendar month. Holders may tender their bonds on any business day in the daily rate mode and in the weekly rate mode, on any business day provided the trustee is given at least seven calendar days' prior notice of the purchase. The bonds of each series are subject to mandatory tender: on each conversion date, other than between daily and weekly rate modes; on each new variable term rate period or following the last day of the medium term rate period; and upon the substitution or expiration, or termination of the LOC. Optional and mandatory redemption provisions also apply to the bonds.

Bond proceeds will be used by the Agency to refund 1998 F and G bonds.

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
Kasia Reed, +1-212-908-0389 (New York, the bonds)
Kathy Masterson, +1-415-732-5622
(San Francisco, the agency)
Christopher Kimble, +1-212-908-0226
(New York, Media Relations)