April 9 (The following statement was released by the rating agency)
Fitch Ratings assigns an 'A+' rating to Sacramento
Municipal Utility District (SMUD), CA's bonds as follows:
--Approximately $150,000,000 electric revenue bonds, series 2013A due 2035;
--Approximately $125,000,000 electric revenue refunding bonds, series 2013 B due
--Approximately $62,000,000 electric revenue refunding bonds, series 2013 C due
The bonds are expected to price during the week of April 15, 2013. Proceeds will
be used to fund planned capital expenditures and refund a portion of SMUD's
outstanding bonds to achieve interest rate savings.
In addition, Fitch affirms the 'A+' rating on the following outstanding SMUD
bonds (including amounts to be refunded):
--$1.9 billion electric revenue bonds;
--$347.9 million subordinated electric revenue bonds.
The Rating Outlook is Stable.
The bonds are secured by the net revenues of the electric system of SMUD.
KEY RATING DRIVERS
STRONG METRICS: The rating reflects improvement in debt service coverage in
fiscals 2011 and 2012, that together with robust liquidity and SMUD's other
stable credit characteristics are consistent with an 'A+' rating.
BOARD REGULATED: SMUD is regulated by an independent Board, which has sole rate
setting authority and is not subject to city council or state utility commission
COMPETITIVE RATES: SMUD's average rates are considerably below their neighboring
provider's, Pacific Gas & Electric (PG&E), providing rate flexibility.
STABLE CUSTOMERS: The almost entirely residential and commercial customer base
of SMUD has been relatively stable despite weakness in the state economy. While
sales have been flat, delinquencies remain manageable.
RENEWABLE AND GHG MANDATES: SMUD is in compliance with state renewable mandates,
primarily through long-term power purchase agreements and increasing use of
landfill gas. Although SMUD will have to comply with increasingly strict
greenhouse gas (GHG) mandates in California, it has sufficient allowances
allocated through 2020 to mitigate any effect on customer rates.
NATURAL GAS EXPOSURE: Power resources are mostly natural gas-fired (around 50%
of energy mix) and subject to fuel price volatility. SMUD's natural gas supply,
comprised of owned natural gas reserves and prepay agreements, is actively
TIMELY RATE ADJUSTMENT: Continued willingness of the Board to adjust rates
sufficiently to maintain SMUD's financial ratios is important to maintain the
CHANGING POWER SUPPLY: Ability to effectively manage a changing power supply
base, as existing long-term power purchase agreements expire and SMUD increases
its renewable resource portfolio.
Stable Service Territory
SMUD is an integrated electric utility providing electric service to more than
600,000 primarily residential, commercial and governmental users in Sacramento,
CA and a small portion of adjoining Placer County. SMUD is the sixth largest
public power retail system in the U.S., in terms of the number of customers
Diverse Resource Mix
SMUD has developed a diverse resource portfolio consisting of district-owned
resources and purchased power arrangements. Four of the five local natural gas
fired plants in SMUD's service territory were financed through the issuance of
project revenue bonds by separate joint power authorities. SMUD entered into
long-term take-and-pay agreements with the authorities for the power generated
from each of the underlying plants. The contracts initially had performance
requirements, although two of the smaller unit contracts have been converted to
take-or-pay with no performance requirements. Together with the local gas fired
stations, SMUD's existing capacity is approximately 60% owned, consisting of
eight different plants.
Improved Financial Position
Improved operational performance and an aggregate 13.25% rate increase over
fiscals 2009-2011 enabled SMUD to strengthen key financial metrics, including
debt service coverage and liquidity. Fitch's calculation of consolidated debt
service coverage improved to 1.85x in 2012 from 1.40x times in fiscal 2010. As
of December 31, 2012, SMUD had $510.0 million of unrestricted cash on hand
including $86.2 million in its two rate stabilization funds. This translates
into 192 days cash on hand, a historical high and well above the district's
stated goal. Prospectively, given conservative sales projections, manageable
capital expenditures, and moderate annual rate increases, SMUD should be able to
maintain its financial targets including a minimum of $200 million in
unrestricted cash reserves (not including rate stabilization funds) and 1.5x
debt service coverage.