TEXT-Fitch affirms Northern Ill. Muni Power Agency revs at 'A-'

Fri Nov 16, 2012 4:40pm EST

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Nov 16 - Fitch Ratings affirms the 'A-'rating on $533 million in outstanding
Northern Illinois Municipal Power Agency (NIMPA) power project revenue bonds. Of
this amount, $109.8 million of the parity bonds consist of federally taxable
debt.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the net revenues of NIMPA, after payment of operations
and maintenance expenses. NIMPA's revenues are supported and derived from the
power sales agreements with each of NIMPA's three member distribution systems:
the city electric departments of Batavia, Geneva and Rochelle, Illinois.

KEY RATING DRIVERS

STRONG TAKE-OR-PAY CONTRACTS: NIMPA is a joint action agency created to provide
generating resources for its three member systems pursuant to a long-term
(2042), take-or-pay power sales agreement (PPA). The member PPAs support NIMPA's
7.6% ownership share in the Prairie State Energy Campus (PSEC) generation
project. As per the PPA, members are obligated to pay NIMPA's costs, including
debt service, whether or not PSEC is operable.

PSEC ACHEIVED COMMERCIAL OPERATION: PSEC attained commercial operation at both
of the generation units this year (Unit 1 in June and Unit 2 in November).
Project completion is estimated to be within budget ($5.1 billion as of 2010
revised project cost) and on-time (according to original construction schedule).

SOLID MEMBER SYSTEMS: While the member systems are relatively small in size
(aggregate 28,500 retail customers), they continue to exhibit solid financial
metrics, with debt service coverage ranging from 1.6x-4.5x for fiscal year 2011.
The cities of Batavia and Geneva additionally benefit from well-above average
income levels and low unemployment figures compared to the state and nation for
2011.

COMPETITIVE MEMBER RATES: The members' average retail rates are below that of
their neighboring investor-owned utilities. Member rates should remain
competitive as no material base rate increases are projected through 2016. The
PSEC power will displace members' similar cost shorter-term power purchases.

HIGH DEBT BURDEN: Given the debt funding of newly constructed generation,
NIMPA's debt burden is expectedly high. Debt-to-funds-available-for-debt service
for fiscal year 2013 is projected at 13.1x compared to the rating category
median of 8.8x. This credit risk is partially mitigated by the members'
financial flexibility (i.e., sound financial position, affluent service
territory and relatively low average electric rates).

WHAT COULD TRIGGER A RATING ACTION

WEAKER MEMBER CREDIT FUNDAMENTALS: The continued solid operating and financial
performance of NIMPA's members, who are obligated to meet 100% of NIMPA's costs,
remains the key credit factor to maintaining NIMPA's rating.

COMPROMISED PSEC OPERATIONS: With members' reliance on PSEC for the majority of
their power supply and NIMPA's high (PSEC-related) debt burden, failure of the
project to adequately operate could result in negative rating pressure for
NIMPA.

CREDIT PROFILE

With the commercial operation of both of the PSEC units completed in 2012,
NIMPA's members can begin to shift their power resource mix (up to 70% of the
members' aggregate power supply) to their owned generation share. Given
relatively low priced electricity markets in the near term, reflecting ongoing
recessionary impacts, PSEC average wholesale cost of power ($56.4/Mwh in 2013)
may be above-market in the initial years, but still in-line with other utility
power providers in the region.

Fiscal year 2013 will be NIMPA's first full year of PSEC operations and
associated member revenues. It is also the first year principal on NIMPA debt
comes due (only capitalized interest through 2012). With estimated level debt
service of approximately $37 million per year, NIMPA's debt service coverage
will likely be in the 1.03-1.10x range, as project expenses are passed-through
to the member systems at cost, plus a coverage adder to build contingency and
capital reserves going forward.

The key drivers for NIMPA's rating are the members' credit quality and PSEC
operations. NIMPA's credit strength is predicated upon its members' ability to
pay NIMPA's power costs; the members' financial and operational performance is
materially affected by PSEC's ability to operate as expected.

The member systems have a relatively small customer base (approximately 28,500
users in total) and maintain high industrial concentration. Offsetting these
concerns somewhat are the strong financial and economic standing of the
communities, the business diversity amongst the industrial loads and the
members' competitive retail rates.


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.

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
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