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 January 28, 2016 - 2:45 PM EST
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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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND 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'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Matthew Reilly, CFA
Director
+1-415-732-7572
Fitch Ratings, Inc.
650 California St, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Kathy Masterson
Senior Director
+1-512-215-3730
or
Committee Chairperson
Christopher Hessenthaler
Senior Director
+1-212-908-0773
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com


Source: Business Wire (January 28, 2016 - 2:45 PM EST)

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