Fitch Rates Roseville, California's $155MM Electric System COPs 'A+'
2008-05-02 21:25:08 -
- Fitch Ratings has assigned an underlying 'A+' rating to the following revenue refunding certificates of participation (COPs) for the City of Roseville, CA
--$90,000,000 electric system COPs, series 2008A;
--$65,070,000 electric system COPs, series 2008B.
Fitch also affirms the 'A+' rating on approximately $267 million of outstanding electric system revenue COPs. Proceeds will refund outstanding series 2005B and 2005C Certificates that are currently in the auction-rate mode, pay the costs associated with terminating the 2005 swap agreement, and pay the costs of issuance. The bonds are being issued as variable-rate demand obligations with a letter of credit (LOC) provided by Dexia. The rating assigned based on the liquidity facility will be released nearer to closing. The bonds are expected to sell May 12, 2008. The Rating Outlook is Stable.
The 'A+' rating reflects Roseville Electric's historically stable financial performance with limited additional debt plans and growing service area. Electric rates are very competitive, providing the city with rate and financial flexibility. The rating also incorporates the customer concentration, with the largest single user accounting for 8.7% of revenues and 11.55% of sales. Concern over this concentration is mitigated by the fact that the utility purchases a significant percentage of power and therefore would be able to adjust purchases should requirements dictate.
There is some concern over the significant transfers to the city, at approximately 10.5% of revenues in 2007, although some of this transfer is for indirect costs for services provided to Roseville Electric and payment is made quarterly. The overall leverage position, debt to FADS (funds available for debt service) is very high at 15.1 times (x). However, the low rates and willingness of council to make rate adjustments mitigates some concern. On a net basis, offsetting total debt outstanding with cash reserves, the ratio is more in-line for the rating category at 8.5x. However, going forward, Fitch would anticipate that this leverage position will improve as debt is paid down and additional rate increases are implemented. The Stable Outlook also reflects Fitch's expectation that the 120 MW combined cycle natural gas plant that commenced operations in October will perform as anticipated.
The city owns and operates the electric distribution system serving all customers within the city's boundaries. Roseville Electric has historically supplied power to its residential and commercial customers from a combination of power received under its long-term contracts with Western Area Power Administration (WAPA), entitlements to a percentage of capacity from various Northern California Power Agency (NCPA) projects; and open market purchases. However, in October 2007, Roseville Electric began commercial operation of its own 120 MW natural gas plant which is expected to generate up to 50% of power requirements going forward.
The system's service area is approximately 36 square miles and is coterminous with the city's borders. In 2007, the system served 49,742 customers, reflecting a CAGR of 3.85% since 2003. Sale growth has also been strong, and in 2007, there was a 3.4% increase over the prior year.
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
Joanne Ferrigan, +1-212-908-0399
Lina Santoro, +1-212-908-0522
Cindy Stoller, +1-212-908-0526 (Media Relations)
