Fitch Rates Lower Colorado River Authority's (Texas), $300MM Rfdg & Improve. Revs, Ser 2009 'A+'

SAN FRANCISCO--(Business Wire)--
Fitch Ratings has assigned an 'A+' rating to Lower Colorado River Authority's
(LCRA) refunding and improvement revenue bonds series 2009 expected to be issued
in an amount up to $300 million. The Rating Outlook is Stable. In addition,
Fitch affirms LCRA's outstanding revenue bonds at 'A+' and LCRA's tax-exempt and
taxable commercial paper (CP) programs at 'F1+'. Proceeds from the 2009 bonds
will refund outstanding CP, fund certain improvements to the system, and pay
costs of issuance. The bonds are expected to price June 17, 2009, depending on
market conditions.

Key rating factors supporting the 'A+' rating include a competitive and diverse
mix of power resources, a large geographic customer base in central Texas with
43 wholesale electric customers; a rate structure that provides timely fuel and
purchased power cost recovery, and stable financial performance. Consolidated
debt service coverage has been historically consistent at approximately 1.4
times (x), which is considered adequate for a wholesale power provider in the
rating category.

Key drivers for the rating in the next few years include competition for
long-term power supply to LCRA's traditional wholesale customers and large
capital needs associated with new generation construction and environmental
improvements. LCRA has signed amended contracts with 31 customers for 56.5% of
its load. Discussions are ongoing with the remaining 12 customers. The extended
contracts to date have varied terms. Of note are terms that include an ability
of the customer to scale down (referred to as 'load-release') its
all-requirements purchases from LCRA over time to 65% of the original all
requirements load. Fitch is concerned with the amount of load (43.5%) under
contracts that extend only to 2016 as compared with the remaining load that have
signed contract extensions to 2041. If LCRA has significantly lower load after
2016, its cost structure and source of revenues to service its existing debt
obligations would change and could result in credit implications. Fitch will be
monitoring LCRA's ability to adequately balance future load requirements with
its current and potential new power supply resources as well as debt service
payments associated with existing assets.

LCRA operates a fleet of generation assets that are primarily coal (1,043
megawatts [MW]) and natural-gas (1,540 MW) fired. LCRA's portfolio is 51%
coal-fired on an energy sales basis. Natural gas-fired generation provides
another 35% of energy sales. During the last few years of natural-gas price
volatility, LCRA's generation has experienced greater stability compared to
market prices, given the predominance of coal. LCRA's rate structure has a fuel
and purchased power cost recovery component that allows LCRA to recover variable
costs from its customers on a timely basis, which is a positive credit factor.
LCRA has some small hydroelectric generation resources and it relies on
purchased power, including wind, to meet remaining system needs. The system had
a peak of 3,211 MW in summer 2008.

LCRA demonstrates solid financial performance as a wholesale entity, balancing
additional costs with increased billing to customers. On a consolidated basis,
including all business lines, LCRA had debt service coverage of 1.40x in fiscal
2008. Without the Transmission Services Corporation (TSC) business line, which
is not pledged to bondholders, LCRA had 1.34x debt service coverage. The TSC
operates as a regulated transmission provider within Texas and typically
exhibits around 1.5x debt service coverage for its own bondholders.

Projected debt service coverage is expected to stay in a similar range. LCRA has
$2.1 billion in capital spending projected over the next five years, although
this includes $1.2 billion in transmission-related projects to be financed by
TSC. The capital estimates include the new generation discussed above and will
be predominantly debt financed. The result will be the planned addition of $1.6
billion in new LCRA and TSC debt, a significant increase to the current
outstanding principal amount of $2.7 billion.

The 'F1+' ratings on LCRA's tax-exempt CP notes and LCRA's taxable CP notes are
based on both the internal liquidity support of LCRA and dedicated revolving
credit agreements specific to each program. The tax-exempt program is supported
by a revolving credit facility provided by JPMorgan Chase Bank (rated 'AA-/F1+',
Stable Outlook by Fitch) of $287.5 million. The taxable program is supported by
a $40 million revolving credit facility provided by JPMorgan Chase Bank and West
LB AG (rated 'A-/F1', Stable Outlook by Fitch). The revolving credit facilities
are dedicated facilities that will cover the payments on the notes if the notes
are unable to be remarketed. In addition to the revolving credit facility, LCRA
has internal liquidity of approximately $206 million as of fiscal year-end 2008
(June 30, 2008) that could be used to support the CP programs, if needed.

LCRA is a public power wholesale provider in Texas serving eight electric
cooperatives, 34 cities, and one investor-owned utility. The utility also
provides regional water and wastewater services in its service area, and manages
water supplies and controls flooding along the Lower Colorado River of Texas.
LCRA manages its operations through four primary business units: Wholesale Power
Services, Transmission Services, Water Services and Community Services.
Wholesale Power Services is projected to account for 71% of operating revenues
in fiscal 2010, followed by Water Services at 7%, and transmission support
services at 21%. Revenues originally associated with transmission have been
shifted from LCRA to its affiliate TSCorp, a nonprofit corporation. TSCorp was
formed to separate LCRA's transmission business from electric generation as
required under the Texas electricity restructuring legislation (Senate Bill 7),
and allow LCRA to provide transmission services throughout Texas, for LCRA and
other contracted entities.

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
Kathy Masterson, 415-732-5622, San Francisco
Christopher Jumper, 212-908-0594, New York
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com

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