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RPT-Fitch affirms Bryan Texas Utilities, TX rural electric system revs at 'A+'; outlook stable
May 30, 2013 / 1:17 PM / 4 years ago

RPT-Fitch affirms Bryan Texas Utilities, TX rural electric system revs at 'A+'; outlook stable

(Repeat for Additional Subscribers)

May 30 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed its 'A+' rating on the following outstanding Bryan Texas Utilities (BTU) rural electric system revenue bonds.

--$5,740,000 rural electric system revenue bonds, series 2008;

--$3,045,000 rural electric system revenue bonds, series 2011.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net revenues of the rural electric system.

KEY RATING DRIVERS

BRYAN TEXAS UTILITIES: The rating factors the common ownership by the city of Bryan, TX (Bryan) of the city electric system (the city system) and the rural electric system (the rural system). The city system is rated 'A+' with a Stable Outlook by Fitch. Although the two systems are separately financed they share the same senior management and all administrative functions.

RETAIL DISTRIBUTION SYSTEM: The rural system provides electric services to approximately 16,446 customers primarily located in Brazos County, excluding the cities of Bryan (served by the city system) and College Station. Power supply needs are met through an all-requirements, take-or-pay contract with the city system.

STRONG FINANCIAL MARGINS: Financial performance has been exceptionally strong with debt service coverage above 7.0 times (x) in each of the past three years. Coverage is expected to be remain strong, albeit at more moderate levels at over 2.0x, in the next few years. Liquidity levels remain satisfactory for the rating with 79 days cash on hand at the end of fiscal 2012.

RATE RESTRUCTURING: Rates were restructured last year to increase amounts collected in base rates and reduce the fuel component. Revenues have outperformed in recent years due to lower than anticipated fuel costs. The rate restructuring is revenue neutral but provides greater alignment in the rate structure with fixed and variable costs.

LOW DIRECT DEBT BURDEN: Without any direct generation related debt, the system's overall debt profile is favorable with low debt per customer levels and equity to capitalization at 84% at the end of fiscal 2012. A planned issuance in fiscal 2013 is not expected to materially change the system's debt profile.

GROWING CUSTOMER BASE: Electricity sales declined in fiscal 2012 reflecting more normal weather conditions following a hot 2011. However, the rural system's largely residential customer base continues to grow as the service territory becomes increasingly less rural.

RATING SENSITIVITIES

STRONG FINANCIAL METRICS: The rating and Stable Outlook assume that the rural electric system's strong financial performance will continue, albeit at more modest debt service coverage levels than the past few years.

CREDIT PROFILE

BRYAN TEXAS UTILITIES

The City of Bryan, TX is located in east central Texas, approximately 90 miles west of Houston and is considered a twin city of College Station, TX. The city owns and operates the City Electric System within the boundaries of the city and the Rural Electric System outside the boundaries of the city. The combined systems are also referred to as Bryan Texas Utilities (BTU). Each system, while operated by a common staff, is maintained separately for accounting and reporting purposes.

The rural system purchases all of its energy from the city system under a take-or-pay contract that requires the rural system to make payments regardless of whether or not power is provided. BTU has sufficient capacity to meets its power needs through its own natural gas fired resources, ownership share in the Gibbons Creek coal fired plant through Texas Municipal Power Agency (TMPA), and long-term purchase power contracts for wind and solar.

STRONG FINANCIAL PERFORMANCE

The rural system has typically exceeded its internal targets of maintaining debt service coverage in excess of 2.0x and cash on hand of at least 45 days of operating expenses. Debt service coverage was in excess of 7.0 times (x) times over the last three years due to lower than forecasted natural gas and purchased power expenses and is forecasted to stay above 3.6x through fiscal year 2015. Fitch calculated coverage of full obligations, which approximates the margin available after meeting debt service and other fixed costs, was 1.54x in fiscal 2012, which is in the higher range for 'A+' rated credits.

Liquidity levels remain sufficient for the rating with days cash on hand improving to 79 days at the end of fiscal 2012, up from 41 days at the end of fiscal 2009. Cash levels are projected to remain steady over the next few years.

LOW DIRECT DEBT BURDEN

The rural system's capital structure reflects its low leverage with equity at 84% of capitalization at the end of fiscal 2012. The rural system's equity position is expected to remain high for the rating level following management's planned issuance of $5 million-$6 million in fiscal 2013.

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