TEXT-Fitch may cut Big Rivers Electric, Ky. pollution control revs

Fri Aug 24, 2012 9:56am EDT

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Aug 24 - Fitch Ratings has placed the 'BBB-' rating on the $83.3 million
county of Ohio County, KY's pollution control refunding revenue bonds (Big
Rivers Electric Corporation Project) series 2010A on Rating Watch Negative.

The rating action reflects the decision by Century Aluminum Co. (Century) to
terminate its power contract with Big Rivers Electric Corporation and the
uncertain effect that the termination will have on the electric cooperative's
financial position and its ability to meet debt service payments.

SECURITY

The bonds are secured by a mortgage lien on substantially all of Big Rivers'
owned tangible assets, which include the revenue generated from the sale or
transmission of electricity.

WHAT COULD TRIGGER A RATING ACTION

INABILITY TO FIND ACCEPTABLE PURCHASERS: Extended over-reliance on short-term
power sales as a replacement for the Century contract to meet debt service would
likely result in a downward rating action.

INSUFFICIENT REGULATORY SUPPORT: Inadequate or untimely support by the Kentucky
Public Service Commission (KPSC) would be viewed negatively.

IMPLEMENTATION OF REASONABLE MITIGATION PLAN: Implementation of a mitigation
plan that maintains financial and operating stability would be supportive of
credit quality.

CREDIT PROFILE

Big Rivers provides wholesale electric and transmission service to three
electric distribution cooperatives. These distribution members provide service
to a total of about 112,500 retail customers located in 22 western Kentucky
counties. Kenergy Corporation, the largest of the three systems, is unique in
that its electric load is dominated by two aluminum smelters, Rio Tinto Alcan
(Alcan) and Century, which together account for more than one-half of Big
River's operating revenues.

Century Terminates Contract

Under the power sales contracts between Kenergy and the smelters, which expire
in 2023, the smelters are required to take-or-pay for specific quantities of
energy, irrespective of their needs. The contracts further provide for
termination on one years' notice without penalties subject to certain conditions
including the termination and cessation of all aluminum smelting operations at
the relevant facilities.

On Aug. 20, 2012, Century issued a notice to terminate its power contract with
Big Rivers and stated its intent to close its Hawesville, KY smelter. Century
claims that the smelter is not economically viable despite electric rates well
below the national average and no apparent reduction in production.

Closure of the smelter has significant potential implications for Big Rivers,
which has acknowledged the termination notice is valid. Besides the impact of
the loss of some 700 plant employees, the remaining customers of Big Rivers will
most likely have to absorb meaningfully higher rates, with the increase
reflecting the amount, pricing and contractual provisions of surplus power sold
to new customers.

Implementation of Mitigation Plan

Big Rivers management had previously developed a mitigation plan for the
potential loss of the aluminum smelter loads and is presently looking into
alternative arrangements with other power purchasers. However, implementation of
future firm contractual arrangements will not likely occur immediately. As a
result, it is likely that Big Rivers will begin the process of seeking emergency
rate relief from the KPSC to help soften any negative effects from the expected
loss of the smelter. According to Big Rivers, Alcan, the other larger smelter,
has not expressed any intent to close its facility.

Future Financial Results Unclear

Big Rivers margins are expected to remain adequate to service financial
obligations over the next 12 months, even with the expected closure of Century's
facility, since Century remains obligated to make all required payments to
Kenergy. However, as time passes, it will be necessary to decipher Big Rivers'
revised business and financial plan and the effect on bond investors.

For additional information on the rating, see Fitch's report, 'Big Rivers
Electric Corporation', dated Aug. 31, 2011, available at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this
action was informed by information from CreditScope.

Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012;
--'Big Rivers Electric Corporation', Aug. 31, 2011.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
Big Rivers Electric Corporation

 (New York Ratings Team)
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