Fitch Affirms Utah Associated Municipal Power Systems Payson Revs at 'A'; Outlook Stable
Fitch Ratings affirms its 'A' rating on the following Utah Associated
Municipal Power Systems (UAMPS, or the system) revenue bonds:
--$61.7 million Payson Power project refunding revenue bonds, series
2012.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by net revenues of UAMPS' Payson project,
principally derived from take-or-pay power sales contracts (PSCs) with
each of 16 project participants.
KEY RATING DRIVERS
PROJECT-BASED WHOLESALE AGENCY: UAMPS is a project-based joint action
agency serving 45 mostly small-sized members through 15 separately
secured projects in an eight-state region of the western United States.
TAKE-OR-PAY CONTRACTS: UAMPS has take-or-pay PSCs with its 16 project
participants in the Payson Power Project. The PSCs, which have been in
force for over a decade, extend well beyond the final maturity of the
bonds. In addition, the PSCs include a 25% step-up provision that
provides a degree of bondholder protection against a default by one or
more participants.
Improving Participant Financials: The project rating is supported by the
credit quality of the largest participants, which generally exhibit
sound financial metrics. With some exceptions, the largest participants
continued to increase their operating margins, liquidity levels, and
system equity over the past few years. Additional credit strengths
include participants' full rate-setting authority, which provides
flexibility to ensure adequate and timely rate recovery.
SOUND ECONOMIC INDICATORS: Project participants serve largely
residential customer bases in dedicated service areas. However, there is
some concentration among largest ratepayers in the participant systems.
Unemployment rates remain low for the largest participants although
income levels are somewhat mixed.
SATISFACTORY PROJECT OPERATIONS: Project performance has been
satisfactory in recent years with solid availability levels and an
increasing capacity factor driven by low natural gas prices. No
additional project debt is expected as UAMPS prefunds the project's
manageable long-term capital needs through rates.
POOLED RESOURCES: UAMPS' power pool allows for the more efficient
dispatch of power and energy and the flexibility for project
participants to access broader power markets.
RATING SENSITIVITIES
IMROVEMENT IN PARTICIPANT CREDIT QUALITY: Continued improvement in the
financial performance and related metrics of the largest participants of
Utah Associated Municipal Power Systems Payson Project would likely lead
to positive rating action.
CREDIT PROFILE
UAMPS was established in 1980 as an energy services interlocal entity to
finance, acquire, and operate various projects for the generation and
transmission of electricity to its 45 members. The members choose to
participate in any of UAMPS' 16 separate projects.
Fitch's principle rating considerations for UAMPS' Payson project remain
the PSCs and the financial and operating performances of the 16
participants. Additional rating considerations include the project
operations and UAMPS' financial position, including its sources of
liquidity.
STEP-UP PROVIDES PROTECTION
A 25% step-up provision in the PSCs provides some bondholder protection
against a default by several smaller members. In addition, the step-up
would cover a default by the largest participant. Consequently,
bondholders do not have direct exposure to any single participant.
UAMPS has a take-or-pay PSC with each of its 16 members who are
participants in the Payson project. The PSCs terminate at the later of
Feb. 17, 2049 or the final maturity of all outstanding project bonds.
IMPROVED PARTICIPANT METRICS
Fitch's analysis of the project participants focuses primarily on the
seven largest participants, which represent 85% of the total entitlement
shares and, under the step-up provisions, could fully support the debt
if the remaining participants defaulted on their obligations.
Positively, the largest participants continue their general trend of
improving financial metrics, which helps support the project's rating.
Aggregate liquidity on a revenue-adjusted basis improved to 163 days
cash on hand in fiscal 2015 compared to just 139 days in fiscal 2013.
Fitch-calculated coverage of full obligations decreased in fiscal 2015
to a still satisfactory 1.26x from 1.53x and 1.57x in fiscal 2014 and
2013, respectively. However, overall debt levels remained low as just
three of the seven largest participants have long-term debt outstanding.
Equity-to-capitalization levels continued at no less than 71% as a
result.
SATISFACTORY PROJECT OPERATIONS
Project operations have been satisfactory. The availability factor has
averaged over 91% since 2008. The capacity factor has increased recently
with the fall in natural gas prices and stood at 35.7% in 2015.
Maintenance-related and other typical capital needs total a manageable
$29.3 million through 2027. UAMPS prefunds all planned spending through
rates.
SATISFACTORY PROJECT FINANCIALS
The Payson project generates satisfactory financial margins and UAMPS
has various sources of liquidity to provide additional support.
Project debt service coverage averaged 1.24x annually over the last five
years. Cash balances increased in fiscal 2015 to 38 days cash on hand.
In addition, UAMPS accrues funds in a major overhaul reserve account
($6.3 million in fiscal 2015) and maintains two system-wide line of
credit facilities totaling $25 million with which to manage cash flows.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Public Power Rating Criteria (pub. 18 May 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864007
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998555
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998555
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
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