Feb 13 - Fitch Ratings has affirmed the 'F1' ratings on Basin Electric Power Cooperative's (Basin, or the cooperative) two commercial paper programs:
--$129,925,000 Mercer County, North Dakota Pollution Control Refunding Revenue Notes, 2009 Commercial Paper Series One (Basin Electric Power Cooperative-Antelope Valley Unit 1 and Common Facilities) (tax-exempt);
--$500,000,000 Commercial Paper Notes (taxable).
Basin's tax-exempt and taxable commercial paper (CP) notes are general unsecured obligations of the cooperative.
KEY RATING DRIVERS
GOOD LIQUIDITY AND LONG-TERM RATING: The 'F1' short-term ratings broadly reflect Basin's sufficient internal liquidity, as well as its 'A+' long-term rating. Basin's total liquidity sources provided satisfactory coverage of 2.4x potential needs at Jan. 31, 2013.
CREDIT FACILITIES PROVIDE SUPPORT: The cooperative has $130 million and $500 million revolving credit facilities to support its respective tax-exempt and taxable CP programs. An additional $400 million credit facility is available for general corporate purposes.
TIMING COULD BE A CONCERN: Although various bank authorizations and incumbency certificates are in place, the timing provisions in Basin's dealer and credit facility agreements could provide a limited window for fully accessing bank funds in the very unlikely event of a failed rollover.
SOLID BALANCE SHEET RESOURCES: For the reason above, Basin's cash and cash equivalents totaling $501 million at Jan. 31, 2013 are an important rating factor.
FORMAL PROCEDURES PENDING: Basin's plan to compile formal procedures that outline steps to redeem maturing CP in the unlikely event of a failed rollover is viewed positively by Fitch. Such procedures are an important consideration in Fitch's criteria for assigning short-term ratings based on internal liquidity.
SOUND LONG-TERM CREDIT CHARACTERISTICS: Basin's financial position has improved since 2008, and the cooperative's financial projections no longer include a dividend from its more volatile ancillary businesses. Manageable capital spending and planned rate increases should further benefit its financial metrics. Current rates remain reasonable at about 5 cents/kWh.
IMPROVED LONG-TERM RATING: Improvement in Basin's long-term rating could lead to upward movement in its CP ratings. This recognizes the inherent link of long-term credit quality and short-term funding needs.
HEIGHTENED TIMING CONCERNS: Heightened concerns as to Basin's ability to fully access its credit facilities in a timely manner could result in downward rating pressure.
GOOD LIQUIDITY AND LONG-TERM RATING
Basin's sufficient internal liquidity and 'A+' long-term rating support the 'F1' short-term ratings on the cooperative's tax-exempt and taxable CP programs. Liquidity sources include $501 million of Basin's own cash and investments (Jan. 31, 2013), as well as two revolving credit facilities internally designed for its CP programs.
A $130 million, five-year credit facility provided by National Rural Utilities Cooperative Finance Corporation (not rated by Fitch) expires in November 2013. Basin is currently renegotiating this facility. A separate $500 million, syndicated credit facility of six banks led by JP Morgan (rated 'A+/F1') is in place for October 2011-2016.
Events of default under both credit facilities include nonpayment by the cooperative's subsidiaries. However, none of the four listed have outstanding debt in excess of what is defined in the agreements as 'material indebtedness'.
SOLID BALANCE SHEET AND OTHER RESOURCES
Basin's approximately $500 million of balance sheet resources is an important consideration of the rating because the timing provisions of the cooperative's dealer and credit facility agreements could provide a limited window for accessing bank funds in a stress scenario. A separate $400 million credit facility available to the cooperative for general corporate purposes provides additional support.
For additional information on Basin's 'A+' long-term rating, see Fitch's press release also dated Feb. 13, 2013, and available at www.fitchratings.com.
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