2008-07-07 23:39:07 -
- Fitch Ratings affirms the 'A' rating of Florida's Kissimmee Utility Authority's (KUA) $225.74 million of outstanding electric system revenue bonds. The Outlook is Stable.
KUA has decided to change the $60.7 million series 2003 electric system revenue bonds from auction rate mode to variable rate demand bonds (in accordance with the Resolution). KUA will be keeping the swap
in place which provides a synthetic fixed rate of 3.519%. The 'A' rated bonds are expected to price the week of July 7, 2008.
The rating continues to reflect KUA's experienced management team, solid power supply and competitive electric rates. Financial metrics are adequate for the 'A' rating level but could be at risk if energy demand growth slows below forecasts or purchased power costs increase. KUA would need to take steps to shore up its financial profile to remain inline with other 'A' rated systems or the credit could be susceptible to a downgrade.
The rating recognizes KUA's membership in Florida Municipal Power Agency's (FMPA) All-Requirements Project (ARP; rated 'A+' by Fitch). The ARP allows participants to pool their resources and utilize generation more efficiently, as well as mitigate some key risks associated with power supply management, such as fuel hedging, wholesale market risks, and single-unit outage. KUA is compensated at market rates for the capacity they bring to the ARP. Like most electric systems in Florida, the ARP has significant exposure to natural gas price volatility, which has required KUA to pass through power costs increases in recent years.
The Kissimmee service territory is mostly residential and small commercial users, with the 10 largest customers representing about 15% of total energy sales. In addition, while KUA's service area territory economy is less dependent on tourism then other Osceola County communities, this is still a credit factor. The City of Kissimmee's wealth indicators are slightly below average for the region.
As a result of slower consumption growth and a 19% increase in purchased power expense, Fitch calculated 2007 debt service coverage, which includes intergovernmental transfers, fell to 1.39 times (x), (from historical norms of about 1.5x). Days cash on hand also declined to about 148 days, as a result of a rate-mitigation-fund drawdown. These lower results are largely offset by the system's ability to recover power costs, quickly amortizing debt burden, and pay-as-you-go capital plan. Management projects debt service coverage levels in the 1.5x range, and intends to support that target with rate increases, as necessary. KUA's debt service payments are level through their 2018 maturity. No additional debt is expected for the foreseeable future.
KUA provides electric services to approximately 65,600 customers. It is located in Central Florida about 18 miles south of Orlando, FL. and seven miles east of Walt Disney World. Approximately 51% of the system's customers are located within the City of Kissimmee, with the remainder located outside the city limits. Peak load for 2007 was 327 megawatts. Growth demand is forecasted in the 2.5 to 3% range.
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
Jason Clark, 212-908-0294
Karl Pfeil, 212-908-0516
or
Media Relations:
Christopher Kimble, 212-908-0226
